Doubt with call Option investment

Hi every1, A year after completion of my MBA degree now I am planning to make some investment in option... I have few doubts to be cleared before starting..

In ICICI knowledge base i found the following :

Here what is that 200(market lot)??? how does he earn 4000 per contract??

Here is my Example :

How does this thing actually work?? I seriously forget things very fast Please help me out here guys..

TY

Navin

Arre bhai lot size 200 matlab u but 200 shares of underlying in 1 contract.

There is a diff between squaring off and excercising, now a days u can only square off as all options are european .Excercise happens only on the day of expiry. look that up . I think the icici site hasn't been updated in a while.

So the diff in premium is what u make or loose .

There's a lot more to options than this. Suggest u put in some (lots of) reading before u leap.

thamks for the help So, you means, every contract we buy has a lot size of 200.. right??

Ya.. If we sqare-off b4 the expiry of the contract, we get the profit/loss with respect to the diff in premium.. say, at certain point of time(b4 the expiry) the nifty index(as per my eg.) goes to say 5495, and the premium thus goes up say 113.. so, the profit is 113-103=10, 10x50=500-brokerage.. right??

If we plan to Excercise the contract ant wait till the expiry of the contract which is say 25 aug, @ at this point of time say, the spot price goes to 5610. Which means i have made a profit of (5610-5500)-103= Rs.7 per unit.. Since the lot size is 200, the profit is 200*7=1400 and the quantity we purchased is 50.. so the final profit is 1400x50= 70000.. Right??

Is what iam assuming is right??

Not every...

Every stock has a different lot size check the nse site for it.

Right.

Wrong, check lot size.

ha ha think i have gone nuts here.. So guess this http://www.nseindia.com/content/fo/fo_mktlots.csv shows the lot size of every scripts... Which means, 50 is the lot size of nifty..

so, If we plan to Excercise the contract ant wait till the expiry of the contract which is say 25 aug, @ at this point of time say, the spot price goes to 5610. Which means i have made a profit of (5610-5500)-103= Rs.7 per unit.. Since the lot size is 50, the profit is 50*7=350 and the quantity we purchased is 50.. so the final profit is 350x50= 17500.. Right??

^^ is my assumption right??

it is half right ur profit is rs350 [ 7*50 ] LOL

In your example, the Spot Nifty price is 5487 and the premium for 5500 Call option is Rs. 103. Therefore, in this case, there is no intrinsic value in this Call price, but it has a time value of Rs. 103.

So, if the option expires on 25th August at 5610, then as rightly calculated by you’ll get (5610-5500) – 103 = Rs. 7. For a lot of 50, it means Rs. 350 profit.

But, why do you wait till expiry? If you do that, you’re sure of losing the aforesaid time value of Rs. 103 of the option. But, if Nifty rises before expiry, say within 2-3 days, its premium will rise at the ratio of about 50% (since it is almost at-the-money option). For example, if the Nifty rises about Rs. 100 in 2-3 days, the 5500 Call will rise in value by about Rs. 50/-. There may be some time value loss of say about Rs. 5 in 2-3 days. So, still you make a handsome profit of Rs. 45. For the lot of 50, it becomes a profit of about Rs. 2250. This is about 45% profit in 2-3 days.

So, it is not worth generally (though sometimes it may be useful when the market is expected to rise substantially) to wait till the expiry of the Call options if you have purchased the call since the time value decrease goes against you. But, if you are the seller of call option, it may be advantageous to wait till the expiry (if the market is otherwise in your favour) since the time value decrease in call option price lands in your pocket. Of course, selling call option requires certain other precautions since if the market rises abnormally, your losses could be huge.

Better course for you is to first study the options in detail. Being an MBA, it should not be difficult. There is more than enough free literature of excellent quality available on the Internet. You must have the interest and the capacity to do hard work to learn.

i am new to options
i have gone through basics .
i want to know basic difference
buy call
sell call
buy put
sell put

can we sell (sell call) with out owning it similarly for sell (sell put)

please provide me any link to following basics in tradeji
















buy put
sell put