Option Query

one of my friend have purchase a nifty call 3350 for July expiry @ Rs.20. The nifty was trading at that time at say 3140. so he she pay 20/- x 100 = 2000.

1) now if she can sell as & when she thinks she has enough profit ( more premium than paid by her ), of course before 27th July,06. but in case she want to excercise he option does she require to wait till nifty crosses 3350 ?
if not, then ....

2) today nifty closes around 3198 aprrox. and her call was trading at 23.10. suppose is she would have excercise the option today then how much profit she would have earned ? 3198 (current price) - 2000 (paid as premium ) = 1198 x 100 = 1,19,800/- ?
or
Rs.23 - Rs.20 = 3 x 100

please explaine all the possible circumstance with the help of above figures. As i don't have any knowledge about it to explain to her

she can sell whenever she wants before expiry day. Exercise is automatic on expiry day and not before that.

her profit will be 23-20 = 3 x 100 = 300. No question of exercise since today is not expiry day.

Hope this helps
Karuna

Hi,

Your friend has purchased a deep Out of The Money call. Purchasing such OTM calls is as good as a lottery.

Break even is at 3350+20=3370, ie, Nifty has to close above 3370 for your friend to make any profit.

Most Options expire worthless , so beware of them.

Regards,

Sunil Saranjame.

Hello raj,

If you have purchased 1 lot of puts you would have to sell one lot of the same contract put to square off. In your case strike 50 put of idbi would have to be sold to square off the buy.
When you sell you would recieve the premium quoted at that time.