Hello Friends,
I have a query around the FnO trading. Taking an example of TataSteel Future price @510 and pricce of 490CE is 30.
Can I buy 1 lot in Futures @ 510 and sell 1 lot of 490 CE @ 30, will that result in net profit of 10 rs at expiry?
Assuming TataSteel closes @ 525 on expiry day.
what will happen if I dont sell the long position in Futures and what will happen if I dont close the position in 490 CE.
Thanks
It is very important to understand the possible outcome when we take trades.
In your assumed case,
TATASTEEL Future is bought at 510.00 and
490 Call is sold at 30.00
This set up will not guarantee profit of 10.00 points for you.
In fact, the maximum possible profit is limited to 10 points by this set up..
whereas, the maximum possible loss remains huge ..
The profit of 10 points is possible as long as the underlying price is greater than or equal to 490 by expiry..
If the price moves to 485, the gain is limited to 5 points..
If the price moves to 480, there will be no profit and no loss..
And when the price starts moving below 480, the loss will start increasing by equal points..
If price moves down to say, 450..the loss will be 30 points.. and a price of 400 will result a loss of 80 points..
So, think and decide the trades..
If you have any plan to adjust the trade set up and manage your risk if and when the price moves down below 490, you may be able to retain your limited profit of 10 points..
If the price falls below 490 and you are not managing your trade position, then slowly your profit will reduce and loss will start..
Think over the possible outcomes before initiating the trade set up.