Couple of Newbie Questions

#1
Hello,

A quick little about me,

I am a new trader or rather.. I should say a new wannabe trader .. I have not traded a dime yet.. I thought it would be better to get my theory concepts right.. , also, I am just too apprehensive when it comes to putting my money on something I dont fully understand ..

heh .. as a new trader, its better to be safe than sorry I guess, I have heard and read too many market horror stories and I only have
15,000 Rs 'risk money' for the year ..


So with that said..

I tried to google a lot but failed to find answers for following questions and now I am stuck .. Please help me .. thanks

Questions:-

1) For Pricing of an option, which price of the UNDERLYING is used? Spot price or the Future price of a SPECIFIC month that matches the expiry of option?

Let me clarify the question: Say stock XYZ is trading at Rs 90.. Say I am looking at strike of 100 for XYZ option which expires in April ..to go long.. now should the value of XYZ SHARE go above my call option strike price of 100 OR the value of APRIL FUTURE CONTRACT of XYZ share has to go above my option strike price of 100? for the option to be considered "in the money" ?


Generally speaking, the price of april future contract of XYZ share will always be more than the spot price of the XYZ share .. Correct? ..

So, if the Current Market Price of XYZ share goes up to Rs 98 and the April Future Contract goes up to say Rs 103 .. is my long option at strike price of 100 .. in the money or out of the money ?


[because future price is nothing but spot price + interest rate so it will be more and will reach the strike price earlier than stock price of XYZ.. Correct ?]


2) Coming to the illusive Implied Volatility, I understand the concept. Now, say I am looking at some nifty strike call premium .. I look at the IV .. say it is showing 40% .. now, I totally understand what it means, but what I dont understand is what do I compare it WITH? .. from where to find out what is NORMAL for nifty ? to figure out if 40% is above or below the NORMAL volatility .. what is NORMAL ? Statistical / Historical? if yes, how to get that?
On 26th NSE started INDIA VIX [ Jai Hind ! ]
So should one compare IV to current VIX ? to see if IV for a specific premium is more or less?
And what about individual stock like tata? where to get its statistical or historical volatility from?

Please do let me know if the questions are not clear, I will try to ask them again in different form :thumb:

Thanks
 

oi trader boi

Well-Known Member
#2
tatyawinchu..that 15k amount will be Om Bhaga Bhruge Bhagni Bhagodari Bhasmase yeoli Om Phat Swaha..

and as you read those horror stories..will be more horror. Hope you got me :p
 
Last edited:
#4
tatyawinchu..that 15k amount will be Om Bhaga Bhruge Bhagni Bhagodari Bhasmase yeoli Om Phat Swaha..

and as you read those horror stories..will be more horror. Hope you got me :p
Did you do paper trading for 6 months first, if not, do that first.
100% going to do paper trade, but I have not even reached to the stage of paper trading, before I get my theory concepts right, I am not going to paper trade the market as a GAME.. For my mindset, paper trade is EXACTLY equal to real money .. though it can NEVER be the same, I UNDERSTAND that if I take paper trading VERY SERIOUSLY, and not fall in a probable trap that I already see .. something like " EHHH.. I would never have done this mistake on my real account.." Hence, even to start my FIRST paper trade, above theoretical questions need to be answered, unless those get answered, I cannot progress .. yet..

thanks for your replies.
 

zabeen2004

Well-Known Member
#5
Hello,

A quick little about me,

I am a new trader or rather.. I should say a new wannabe trader .. I have not traded a dime yet.. I thought it would be better to get my theory concepts right.. , also, I am just too apprehensive when it comes to putting my money on something I dont fully understand ..

heh .. as a new trader, its better to be safe than sorry I guess, I have heard and read too many market horror stories and I only have
15,000 Rs 'risk money' for the year ..


So with that said..

I tried to google a lot but failed to find answers for following questions and now I am stuck .. Please help me .. thanks

Questions:-

1) For Pricing of an option, which price of the UNDERLYING is used? Spot price or the Future price of a SPECIFIC month that matches the expiry of option?

Let me clarify the question: Say stock XYZ is trading at Rs 90.. Say I am looking at strike of 100 for XYZ option which expires in April ..to go long.. now should the value of XYZ SHARE go above my call option strike price of 100 OR the value of APRIL FUTURE CONTRACT of XYZ share has to go above my option strike price of 100? for the option to be considered "in the money" ?


Generally speaking, the price of april future contract of XYZ share will always be more than the spot price of the XYZ share .. Correct? ..

So, if the Current Market Price of XYZ share goes up to Rs 98 and the April Future Contract goes up to say Rs 103 .. is my long option at strike price of 100 .. in the money or out of the money ?


[because future price is nothing but spot price + interest rate so it will be more and will reach the strike price earlier than stock price of XYZ.. Correct ?]


2) Coming to the illusive Implied Volatility, I understand the concept. Now, say I am looking at some nifty strike call premium .. I look at the IV .. say it is showing 40% .. now, I totally understand what it means, but what I dont understand is what do I compare it WITH? .. from where to find out what is NORMAL for nifty ? to figure out if 40% is above or below the NORMAL volatility .. what is NORMAL ? Statistical / Historical? if yes, how to get that?
On 26th NSE started INDIA VIX [ Jai Hind ! ]
So should one compare IV to current VIX ? to see if IV for a specific premium is more or less?
And what about individual stock like tata? where to get its statistical or historical volatility from?

Please do let me know if the questions are not clear, I will try to ask them again in different form :thumb:

Thanks
Hello brother,

Entering into the options market directly without much knowledge is something like "drinking poison thinking apple juice....." and that too with 15k capital !!!! is of huge risk... Money management is very important in terms of trading so keeping that in mind you can't control the same in options market with 15k capital.... Trade in cash market until you get comfortable... Anyways this is my opinion and its upto you... ALL the best.
 
#6
Hello,

A quick little about me,

I am a new trader or rather.. I should say a new wannabe trader .. I have not traded a dime yet.. I thought it would be better to get my theory concepts right.. , also, I am just too apprehensive when it comes to putting my money on something I dont fully understand ..

heh .. as a new trader, its better to be safe than sorry I guess, I have heard and read too many market horror stories and I only have
15,000 Rs 'risk money' for the year ..
Thanks
Starting with options as a new trader is not a good way to enter trading. Try with Equities. So you can control the lot size, say RS.3000 for each and so you can trade up to 5 equities max. Let's say you can make Rs.30-50 every day after brokerage and taxes, which will give Rs.600-1000 a month, which is 4%-7% return a month. Slowly you can increase your exposure.

Options can give you high return and even higher lose.

My 2 cents.
LV
 

Similar threads