In a write(sell) call option - max we can loose is the premium we received?

#1
My friend sold nifty call option at strike price of 11100 for July 26 2018 expiry date and wondering if he can square off before expiry date? He sold for 48 Rs. and current price is 40 Rs. but he is worried that price may go up…
Also we want to know what is the maximum amount he can loose…total he got is 48X75 minus brokerage and taxes… about 3550 Rs. He was told that the maximum he can loose is this 3550 Rs…is it true ?
if so …why there is about 50000 Rs. margin + spread?
 

anml

Active Member
#2
If at july expiry end , nifty future closes below 11100 or at 11100 he will get all the premium ,( ie 3550rs - brokerages ) till closes at 11148 breakeven , he wont get any profits , but if closes abv 11148 he may be in loss , the loss depends upon how much closes abv 11148 , if closes at 11248 then 100 pt loss ,ie 7500 loss / lot (these are just for how much will get or lose in this trade , not abt nifty movements prediction , ) option writing is all abt how much he is well known abt movement predicton by TA or some hedgings ,

My friend sold nifty call option at strike price of 11100 for July 26 2018 expiry date and wondering if he can square off before expiry date? He sold for 48 Rs. and current price is 40 Rs. but he is worried that price may go up…
Also we want to know what is the maximum amount he can loose…total he got is 48X75 minus brokerage and taxes… about 3550 Rs. He was told that the maximum he can loose is this 3550 Rs…is it true ?
if so …why there is about 50000 Rs. margin + spread?
(Does your friend told max. loss is 3550 or asking yourself , bcz if he sold means wont told that max loss is 3550 only in that CE selling ?
o_O)
 

jagankris

Well-Known Member
#3
My friend sold nifty call option at strike price of 11100 for July 26 2018 expiry date and wondering if he can square off before expiry date? He sold for 48 Rs. and current price is 40 Rs. but he is worried that price may go up…
Also we want to know what is the maximum amount he can loose…total he got is 48X75 minus brokerage and taxes… about 3550 Rs. He was told that the maximum he can loose is this 3550 Rs…is it true ?
if so …why there is about 50000 Rs. margin + spread?
Maximum he can loose 3550 is not correct.It depends on the expiry.
If July Nifty expires less than 11148 then no loss.
Say if Nifty expires at 11500 his loss will be = (11500-11100-48)*75 = 26400 rs.
Hope it is clear.
 

traderniftybull

Well-Known Member
#4
Someone has misguided him.

In simple words
It is 3550 (less expanses) the maximum, he will earn from this trade, if 11100C closes at 0 (zero) in July expiry.

Talking about losses, its open, (like a future short), it will be decided on July expiry price (if he continues till then) the more the price above 11100 the more the loss. In the meantime he will have to pay MTM every day once trade goes into loss (@ price above 48) and if call price continue to rise over and above 48

Why the margin of 50000, it is to cover brokers risk
 

pannet1

Well-Known Member
#5
My friend sold nifty call option at strike price of 11100 for July 26 2018 expiry date and wondering if he can square off before expiry date? He sold for 48 Rs. and current price is 40 Rs. but he is worried that price may go up…
Also we want to know what is the maximum amount he can loose…total he got is 48X75 minus brokerage and taxes… about 3550 Rs. He was told that the maximum he can loose is this 3550 Rs…is it true ?
if so …why there is about 50000 Rs. margin + spread?
in simple terms your friend confused with max loss and max profit. just with your experience think is making money this easy.
your friend has actually sold insurance to someone who is afraid that the market may go up above 11100 before july 26 ... and if it does ...your friend has to pay the difference amount (between the CMP and 11100 strike)
most probably your friend has to live in fear every day.. that the market may go up.

in other terms, if you are doing something risky, then the broker asks for margin:p
 
#9
arey bhai,
curiousv problem was about option writing and not option buying
and
IMO, option writing is always dangerous, if one does not know what he is doing
while for option buying, if one is on the right side, will make good money (except in some cases)
even otherwise. one makes money in stock market, only and only if one is on the right side.

BTW, in my thread, there is nothing informative, only my boastings, most of the time. :DD
 

amrutham

Well-Known Member
#10
My friend sold nifty call option at strike price of 11100 for July 26 2018 expiry date and wondering if he can square off before expiry date? He sold for 48 Rs. and current price is 40 Rs. but he is worried that price may go up…
Also we want to know what is the maximum amount he can loose…total he got is 48X75 minus brokerage and taxes… about 3550 Rs. He was told that the maximum he can loose is this 3550 Rs…is it true ?
if so …why there is about 50000 Rs. margin + spread?
Seems like your friend is a newbie in options.

Options writing without proper knowledge is very dangerous. He can lose all his margin money with one big adverse move.
 

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