Option Strike Price

why there is NIFTY 5900 PE 27-sept-2012 option in NSE OPTION INDEX?

Let me explain why I raised this question ..

We know current NIFTY spot is 5,386.70 (As on 24-Aug-2012) ....Also we know people normally buy PE options thinking that index will go down....However I find the above 27-sept-2012 PE option has a very high strike price i.e 5900 and this is above spot price ..I'm sure PE buyers are not going to buy this option because they have bearish mindset about markets....then who will buy such options ? This looks unrealistic

NSE is supplying strikes before hand. Because no one knows where the market will go.

An other answer beside what dear Soft-trader has posted: Strategies. Those strike levels can be used for option strategy trading as well as hedging strategies.

Ok ... not a problem ..But I'm worried whether this PE behaves normally like other PE's.

In other words ...For example , lets assume two cases ...

Case1: market is bearish ....i.e spot price is going down ....that means premium of NIFTY 5900 PE 27-sept-2012 should move up ....right ?

Case2: market is bullish....i.e spot price is going up ....that means premium of NIFTY 5900 PE 27-sept-2012 should move down ...right ?

We need to understand the behavior of this PE if we want to use this as a hedging tool. ....So does this PE behave the same way as other PE's do ?

Dear Megapixel

The following questions are of no personal nature, just questions. I explained the subject already a few times in the past in different threads.

Did you ever hear about the option greeks and did you ever read in my thread about options?

Delta is the greek you have to understand and you have to understand what are itm, atm and otm options. They act different to a moving spot price of there underlying as delta differs in each of this options to the future price.

As you already a bit understand: If market moves up, the put can loos value if you are long the put and if market moves down, the put can add value if you are long the put. (To stay simple we now do not look at time and vega)

The future is always 100 or one delta and the options do have different deltas depending if they are itm, atm or otm.

http://www.traderji.com/options/66266-option-trading-danpickup-5.html#post647575

http://www.traderji.com/options/66266-option-trading-danpickup-7.html#post648816

If this is to complicate, use the dictionary in the next link. Explanations are basic and simple to understand: http://www.investopedia.com/terms/d/delta.asp

Good trading

DanPickUp

Thanks for the post. I know Delta. In fact ..I konw many people use this Delta as a selective tool to choose Option Strike Price before entry ...the reason is simple ... it gives an idea how fast your option price will change with the underlying price ...its quite good for Option intraday trading you know...everybody wants the option price to move ...not stuck...and hence Delta is our friend.

But we are not talking about multiple strike prices here. We are talking about this specific PE only...so there should be one Delta ...is not it ?

I'm not sure which direction you are trying to make point ...but I have a guess .....are you trying to say something like this .....As this option is already in the money ...premium will be expensive ...people will choose this specific PE if they find it has less negative delta than other PE's and make some money ...so there could be potential buyers for this PE.

Please correct me if my understanding is wrong.

I'm doing RND in option trading ..going through many pdf books , youtube videos etc to enrich knowledgebase myself.

Dear Megapixel

http://www.nseindia.com/live_market...-&segmentLink=17&symbolCount=2&segmentLink=17

Put 5900 is deep in the money. Delta is more or less -1. With such a high delta, the put moves nearly similarly like the underlying and that means more profit or more loss. If market has a low volatility, such position can make a lot of sense, as options are losing time value.

Good learning and good success.

DanPickUp