Question about writing options

katezman

katezman

Member
#1
#1
Hello,

I have always been buying and then selling options. I am looking at the time decay attribute of options and I have a question about writing/shorting options.

For ex: Assuming The nifty future value is 7890 and I assume the market is going to go down. The call value of 8000CE currently is 60. If I write 2 lots of 8000CE at 60, (RMS margin needed: 7890x100 = 789000) and the future value goes down to 7850 and 8000CE to 30. When I buy now, will it consider the future or the actual option value?

(7890-7850)x100 = 4000 Profit
or
(60-30)x100 = 100 = 3000 Profit

Thanks in advance.
 
manishchan

manishchan

Well-Known Member
#2
#2
katezman said:
Hello,

I have always been buying and then selling options. I am looking at the time decay attribute of options and I have a question about writing/shorting options.

For ex: Assuming The nifty future value is 7890 and I assume the market is going to go down. The call value of 8000CE currently is 60. If I write 2 lots of 8000CE at 60, (RMS margin needed: 7890x100 = 789000) and the future value goes down to 7850 and 8000CE to 30. When I buy now, will it consider the future or the actual option value?

(7890-7850)x100 = 4000 Profit
or
(60-30)x100 = 100 = 3000 Profit

Thanks in advance.
Click to expand...
When you short option, you get profit right away.. coz you are selling the premium. ie if you are shorting 8000CE @ 60. You will receive premium amt of 60*100 = 6000 (so you will pay the margin amoutn - 6000)

Later when you buy back... you will have to pay back the differences. Lets say you buy when 8000CE is @ 30. So you will buy back for 30*100 = 3000.

Now profit = Amount you received when sold option - Amt you paid when bought back (6000-3000). which is 3000.

In case 8000CE goes up to 100.. then you have to buy back at 100*100 = 10000 (loss of 4000)

Hope this clarifies...
 
T

trader_ks

Active Member
#3
#3
These are very basic questions. I suggest you that before jumping in selling of option , you should go through various threads in traderji forum.
Option selling is very risky and you can get unlimited loss while profit is limited only.
 
You must log in or register to reply here.
Thread starter Similar threads Forum Replies Date
T Some Octafx questions Forex 0
Z Question related to Margin on next day Advanced Trading Strategies 0
J Conceptual question on growth and dividend Beginners Guide 3
A A very basic question on option selling (writing) Options 4
S Option writing question Options 1

Similar threads