I'm interested in learning about Options trading. I find Futures pretty scary but I know that, unlike Futures, the loss potential of Options Buyers is limited to the premium only. If your prediction goes wrong you lose all the money you paid as the premium, right?
But is it possible to trade with a stop loss? For example let's say I buy the December CALL CE Options contract of a company with current stock price Rs 50, at a strike price of Rs 55 with contract size of 100, with Rs 10 as price of a contract. That is I pay Rs 1000 as the premium and buy the CALL. What if the stock starts falling down and goes towards Rs 40 and I understand that the stock won't recover by Expiry? I have noticed that the premium of a CALL decreases if the stock price falls. So, suppose the premium now becomes Rs 5 from the Rs 10 I purchased the contract at. Now, can I "get rid" of this contract by "selling" it off before Expiry? Since this is a CE type Option, it cannot be exercised before the Expiry date. If I wait for Expiry date, I will lose all of my Rs 1000. But if the contract now quotes at Rs 5, will I get Rs 500 (Rs 5*100) and recover at least half of my investment? (Just like people purchase stocks and get rid of them with a certain loss if they hopelessly start falling.) Does it work like that in case of Options?
And will I become a CALL Option Writer if I do that (which is scary since Option Writing is very risky, with an obligation rather than just a right as a Buyer)? If I "get rid" of this contract at Rs 5 (total Rs 500) am I writing a CALL and entering YET ANOTHER contract as a CALL writer? Or have I completely got rid of all obligations and have absolutely nothing more to worry about?
Thanks in advance! Please help me!
But is it possible to trade with a stop loss? For example let's say I buy the December CALL CE Options contract of a company with current stock price Rs 50, at a strike price of Rs 55 with contract size of 100, with Rs 10 as price of a contract. That is I pay Rs 1000 as the premium and buy the CALL. What if the stock starts falling down and goes towards Rs 40 and I understand that the stock won't recover by Expiry? I have noticed that the premium of a CALL decreases if the stock price falls. So, suppose the premium now becomes Rs 5 from the Rs 10 I purchased the contract at. Now, can I "get rid" of this contract by "selling" it off before Expiry? Since this is a CE type Option, it cannot be exercised before the Expiry date. If I wait for Expiry date, I will lose all of my Rs 1000. But if the contract now quotes at Rs 5, will I get Rs 500 (Rs 5*100) and recover at least half of my investment? (Just like people purchase stocks and get rid of them with a certain loss if they hopelessly start falling.) Does it work like that in case of Options?
And will I become a CALL Option Writer if I do that (which is scary since Option Writing is very risky, with an obligation rather than just a right as a Buyer)? If I "get rid" of this contract at Rs 5 (total Rs 500) am I writing a CALL and entering YET ANOTHER contract as a CALL writer? Or have I completely got rid of all obligations and have absolutely nothing more to worry about?
Thanks in advance! Please help me!
