New to Options Trading.... Need little help

#1
I have new to options and till date only traded in futures.
I am only interested in trading "Nifty Options".

Eg: If currently nifty (Spot)is at 5940, and the CE(call)6000 is at 54.....
Does it mean 6000+54 = 6054, hence i can only make profit when the spot nifty exceeds 6054?

Eg: If currently nifty (Spot)is at 5940, and the PE(put)5900 is at 80...
Does it mean 5900-80 = 5820, hence i can only make profit when the spot nifty goes below 5820?

Have i understood properly?

Next, if at a premium of 80 I short 1Lot, hence 80x50 = 4000. So will my trading account will be deducted 4000rs. only? and if dont buy back my total loss will be 4000, am i getting it right?

PS: I am only interested in intraday trades.

OFFTOPIC: I have this question of which i am not getting proper reply, you may wana help their as well.
http://www.traderji.com/technical-analysis/47437-iip-gdp-etc-when-gets-published.html#post494640
 

TraderRavi

low risk profile
#2
As you are only interested in intraday....in your example..consider 6000 CE...if nifty moves in your direction...ie upwards...this premium will start increasing from 54.....so you can square off at your wish...ie if premium reaches 64...you will get 64 - 54 = 10 x 50 = 500 - brokerage...But if Nifty moves in opposite direction of your position..premium will decrease......similarly for puts ie PE...NIFTY has to move downwards...premium will increase......and premium decays with time too...so at the same nifty spot...next day premium will be less......But your risk is limited to premium paid by you in buying options....
Option selling is a different ball game...you need margin of 1 lot futures for selling 1 lot options....but you will receive the premium of 4000.. as in your example..this is your maximum reward....but risk is unlimited....because if nifty moves in opposite direction...premium will start increasing....As risk is unlimited here....So option selling is not advisable untill you gain experience in options....
 
#3
-If i buy Nifty 6000CE @ 54.... and market crashes how much money am i suppose to loose - Will it be 54x50= 2700Rs. ? OR its supposed to be premium at tht time, ex: at market crash premium is 20, hence 20x50 =1000Rs.

PS: I really need sum gud advise on where to understand the options properly. I searched the net but not getiing much hold of it frm international websites, coz their working mechanics are different.
 
Last edited:

rajeabc

Well-Known Member
#4
-If i buy Nifty 6000CE @ 54.... and market crashes how much money am i suppose to loose - Will it be 54x50= 2700Rs. ? OR its supposed to be premium at tht time, ex: at market crash premium is 20, hence 20x50 =1000Rs.

PS: I really need sum gud advise on where to understand the options properly. I searched the net but not getiing much hold of it frm international websites, coz their working mechanics are different.

yes..BUT if you short then loss could be much more..
 

AW10

Well-Known Member
#5
-If i buy Nifty 6000CE @ 54.... and market crashes how much money am i suppose to loose - Will it be 54x50= 2700Rs. ? OR its supposed to be premium at tht time, ex: at market crash premium is 20, hence 20x50 =1000Rs.

PS: I really need sum gud advise on where to understand the options properly. I searched the net but not getiing much hold of it frm international websites, coz their working mechanics are different.
if you don't take any action (i.e. don't clsoe the position at loss but hope that mkt will recover and bring u in profit), then max loss will be 54*50 = 2700.
if you take action and ready to book loss then your loss will be (54-20)*50 = 1700. i.e. you are reducing the loss by collecting atleast 20 rs back from market and accepting your mistake. P&L is always (sell price - buy price)*qty.

hope this helps.

happy trading
 
#6
Thx AW10,
I got it perfectly.

Now i got confusion about shorting.
If spot nifty is at 6000 and i believe it wont go above 6100. So can't i short PE6100 @ xyz premium ?

I am asking above as option selling is risky, as i have to honor the contract at the end of month and the loss can be unlimited.

So, what i have to do sell 6100CE instead ? (so tht if market goes above 6100 i only loose my premium)
 

absolute.zero

Well-Known Member
#7
Hello

After doing some trading in equities and futures, now I wanna start trading in options. I have decided to trade options for a quite low profit margin. I will do these trades after identifying trend of the underlying security in cash market, and according will only BUY Call or Put options. No to sell / write options at present.

I wanna know names of some liquid stock options in which I may start with. I downloaded F&O bhav copy from NSE, but confused as volumes (No. of contracts) fluctuates a lot day to day. What you guys consider a substantial volume (No. of Contracts traded in a day) for a stock options to be termed as liquid. I know Index options are quite liquid.

So, please, suggest me some 25 - 30 names of stock options and average volume to consider them as liquid.

Thanks and Regards !:)
 
Last edited:

iamaaditya

Active Member
#8
One of the best books on Options (atleast according to my reading experience0 is
Options Essential Concepts and Trading Strategies, 2nd Edition

You can download it from the link below
https://sites.google.com/site/phsknmbooks/home/books


you seem to be confused, shorting the put is being bullish and not bearish, and that too shorting OTM put is being very bullish. If you think Nifty will not go above 6100 then you can either short Call (CE6100) but you will only receive 24.50 (premium) (not enough reward) or you can buy Put (PE6100) but you will have to pay 161 (premium) (so to be profitable the nifty has be be alteast 6100 - 161 = 5939 (also subtract your brokerage) (too much risk).

have a look at the image below
http://reasonablythinking.files.wordpress.com/2010/02/pl-four-basic-strategies.jpg

and if you are less of book and more of video person then I recommend "bionicturtledotcom" channel in youtube.
 

iamaaditya

Active Member
#9
Hello

After doing some trading in equities and futures, now I wanna start trading in options. I have decided to trade options for a quite low profit margin. I will do these trades after identifying trend of the underlying security in cash market, and according will only BUY Call or Put options. No to sell / write options at present.

I wanna know names of some liquid stock options in which I may start with. I downloaded F&O bhav copy from NSE, but confused as volumes (No. of contracts) fluctuates a lot day to day. What you guys consider a substantial volume (No. of Contracts traded in a day) for a stock options to be termed as liquid. I know Index options are quite liquid.

So, please, suggest me some 25 - 30 names of stock options and average volume to consider them as liquid.

Thanks and Regards !:)
Other than Nifty and BankNifty I find Infosys, SBIN, Tatamotors, Reliance, most liquid even in OTM (far) Strike Prices. Then in second category Tatasteel, TCS and Icicibank.
Also stocks in Nifty50 are liquid but in and around the money.
Can't really comment on the volume (which changes a lot) (if you have downloaded historical quotes, calculate 100 days volume which should form as the basis (but also remember to track the Vix and the overall FII flows which plays role in vol/OI)

If i get time will tell you few more liquid options but since you are planning to start a fresh i would suggest you to stick to index options and those mentioned above.
 
#10
Hello

After doing some trading in equities and futures, now I wanna start trading in options. I have decided to trade options for a quite low profit margin. I will do these trades after identifying trend of the underlying security in cash market, and according will only BUY Call or Put options. No to sell / write options at present.

I wanna know names of some liquid stock options in which I may start with. I downloaded F&O bhav copy from NSE, but confused as volumes (No. of contracts) fluctuates a lot day to day. What you guys consider a substantial volume (No. of Contracts traded in a day) for a stock options to be termed as liquid. I know Index options are quite liquid.

So, please, suggest me some 25 - 30 names of stock options and average volume to consider them as liquid.

Thanks and Regards !:)
The following are stocks that I've noticed offer decent liquidity for ITM and just OTM options. Most of them are NIFTY stocks:
BHARTIARTL
DLF
HINDALCO
ICICIBANK
IDEA
INFOSYSTCH
JPASSOCIAT
RCOM
RELCAPITAL
RELIANCE
RPOWER
SAIL
SBIN
STER
SUZLON
TATAMOTORS
TATASTEEL
TCS
UNITECH
 

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