Help - Buying farthest ITM PUT

iTrade

Well-Known Member
#1
Hi All Options Trader,

need your help to understand buying puts and strike price.

I am expecting AXISBANK to go down which is currently trading at 1000 levels.
What is see that the 1250 strike price LTP is very low at 4 (so it will cost me 4*250=1000 premium). If I buy this put, and at the end of expiry if AXIS goes to 990, will I profit? Will the premium change?

Summary of my question:
What I want to ask is that if I buy the farthest put and if the stock does not touch it or goes below by very small amount , will I be always in profit? Whats wrong with this strategy of buying farthest put avaiable?

Pls explain, if possible with my example as above.
 
#2
Hi All Options Trader,

need your help to understand buying puts and strike price.

I am expecting AXISBANK to go down which is currently trading at 1000 levels.
What is see that the 1250 strike price LTP is very low at 4 (so it will cost me 4*250=1000 premium). If I buy this put, and at the end of expiry if AXIS goes to 990, will I profit? Will the premium change?

Summary of my question:
What I want to ask is that if I buy the farthest put and if the stock does not touch it or goes below by very small amount , will I be always in profit? Whats wrong with this strategy of buying farthest put avaiable?

Pls explain, if possible with my example as above.
u joined in 2006 still with rookie questions ....:annoyed::annoyed:
 

iTrade

Well-Known Member
#3
Yes. Don't mind but here are few facts about me:

1. I have never traded options. Recently started studying options
2. I am still in loss [intraday trading]
3. I believe 8 yrs of trading is still not enough to develop the patience to make profits and stick to a good strategy.

I don't mind your assumption about me, but hope you don't assume/guess today's market direction based on 2006 data :)

Now if you could pls answer me, I will be grateful to you.
 
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iTrade

Well-Known Member
#5
buddy check one more time its call...not put....
Oh! I am too much confused. So you mean, I should be buying a put since I am expecting the stock to go down. Also, buying a out will safeguard my maximum loss to the premium that I pay, right?
 
Last edited:
#6
Oh! I am too much confused. So you mean, I should be buying a put since I am expecting the stock to go down. Also, buying a out will safeguard my maximum loss to the premium that I pay, right?
the thing u mentioned in your example is call not put...and buying a put when stock going down will increase your profit....:) i too agree you are too much confused:D:D
 

Cubt

Well-Known Member
#7
It should be 900 put or 950 put.. if axis goes down from 1000 to 950 before expiry, u gain more. If it stays in 1000 levels or just go down a bit, u would lose.

For example - today u buy put option 950 @ 4rs.

if axis bank comes down to 950 levels - ur 4rs will increases to 8rs.

The problem here is how LONG or how many days doea it take to come down. The more days it takes, the more u lose. The less no of days it takes, then ur profit doubles, triples.
 

sam_kuw

Well-Known Member
#8
Hi All Options Trader,

need your help to understand buying puts and strike price.

I am expecting AXISBANK to go down which is currently trading at 1000 levels.
What is see that the 1250 strike price LTP is very low at 4 (so it will cost me 4*250=1000 premium). If I buy this put, and at the end of expiry if AXIS goes to 990, will I profit? Will the premium change?

Summary of my question:
What I want to ask is that if I buy the farthest put and if the stock does not touch it or goes below by very small amount , will I be always in profit? Whats wrong with this strategy of buying farthest put avaiable?

Pls explain, if possible with my example as above.
In short -

Puts - If u think the price will go down buy puts with strike price lower than current price. By expiry if the price does not go lower than ur strike price you will lose ur money.

Calls - If u think the price will go up buy calls with strike price higher than current price. By expiry if the price does not go higher than ur strike price you will lose ur money.

Above is just basic information.
For a complete understanding of options you can go through threads in TJ created by the expert members here and browse the internet.
 
#9
i think u have confused with strike price and premium.

If you buy 1250 strike price put option @ 4 means you are expecting axis bank below 1250 within expiry of contract.So there will be no change in strike price that is if axis bank touches 990 your premium will increase not strike price

For example Let us imagine that you are a land dealer. you will buy property for your clients.
Suppose, if you came to know about good property worth 1 crore(strike price in options) and you can make good commission from it, but you don't have that much cash or client. So You will go to landlord and give him some advance(premium in options) and make a contract with him not sell the property to others for 10 month.

Within this month you will find a client and you sell that property after that you'll get commission.
But imagine if another land dealer comes in to pay some advance(premium) to the same property. Now, landlord makes contract with the person who gives maximum advance.this how premium goes up.
OR If you fail to find client within 10 months you'll loose your advance.

Above can be applied to your puts. The value of property that is strike will not changed. but the premium or advance may vary according to demand and supply. It totally depends on buyer and seller.

May be if axis bank falls to 990 your premium may go to 15 or come down to 3. and one more thing ITM puts are dangerous game better play safe
 
#10
Yes. Don't mind but here are few facts about me:

1. I have never traded options. Recently started studying options
2. I am still in loss [intraday trading]
3. I believe 8 yrs of trading is still not enough to develop the patience to make profits and stick to a good strategy.

I don't mind your assumption about me, but hope you don't assume/guess today's market direction based on 2006 data :)

Now if you could pls answer me, I will be grateful to you.
Just for starting into Options I will advice you to go through some basic information first . Link below:

http://www.nseindia.com/content/ncfm/sm_otsm.pdf

Options seem very lucrative at first sight but I really want to alert you that Options can be really dangerous for Capital if played without understanding them in depth.
 

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