Newbie's Question on Options

[rsg]

Hi Ivanboesky,
Great. Thanks.
I have few more questions. Please clarify. I appreicate you very much.
1. Is the multiplier for nifty index and sensex option is 100?
2. Are both index options are cash settled?
3. Can I assume all the india stock options are not cash settled and multiplier is 100?
4. When I look at the nifty option quote sceen, there is a column "market lot" and "underlying value". What do they mean. In US stock option quotes, I don't see anything like that.

Thank you.
rsg

 

[ivanboesky]

The Nifty lot size is 100, the Sensex lot size is 50.
Yes, Index & Stock options are cash settled.
All options in India are cash settled. There is no physical settlement yet. The lot sizes vary. Check out the attached file for the lot sizes.
In the US, each lot contains 100 shares. In India, the lot sizes vary with the price of the stock. The lot sizes are adjusted so that the order value is atleast Rs. 2 lakh.
"Market lot" is the minimum amount that you have to buy with a single order. "Underlying value" is the price of the stock/ index on which the option is based.

 

[subratabera]

Hi Ivanboesky,

I am new to option market and have many queries about option trading. Please help me clarify my doubts.

1) I have heard that when I sell an option it can be exercised anytime by NSE without my knowledge. So how can I know when my option is exercised by NSE as soon as it get exercised?

2) How can I determine at what price my option is exercised before getting the contract note on the following day?

I want to experiment the covered call/put strategy by buying/selling the NIFTY futures and selling the call/put option simultaneously. So it is very important for me to know when my option get exercised by NSE and that's why I am asking these questions.

I am expecting your help soon. Any other suggestions are also welcome.

I have also developed an option calculator which you can find at
http://www.traderji.com/attachments...culator-my-option-calculator.xls?d=1140201261
Please review it and share your views if possible.

Thankyou.

Subrata bera.

 

[ivanboesky]

If you have sold an American call option, and it gets assigned to you, you would only know of it after market close. So if you have a covered call position, it would leave you with a long stock/ futures position, for which you would be running overnight risk.
The option exercise price would be the difference between the closing price of the underlying stock minus the strike price of the option.

 

[vince]

I want to experiment the covered call/put strategy by buying/selling the NIFTY futures and selling the call/put option simultaneously. So it is very important for me to know when my option get exercised by NSE and that's why I am asking these questions...

Nifty options are european , they get excercised automatically at expiry. You don't have to worry about early assignment.

 

[subratabera]

Thankyou ivan and vince for your help. But vince if NIFTY options are european then is that mean that I cannot square off my position before the expiry date? I am waiting for answer...

Please check out my option calculator also and give me some suggestions on how to improve it so that it can become more useful.

Thankyou once again.

Subrata Bera.

 

[vince]

Subratabera,

You can square off nifty options at any given time before expiry. But if you are a writer you cannot be assigned before expiry, and nor can you exercise earlier if you are a purchaser.

regds

 

[subratabera]

But if you are a writer you cannot be assigned before expiry, and nor can you exercise earlier if you are a purchaser.

Hi Vince,

As I have never traded options before, I don't want to trade something which I don't understand perfectly. I am reading books about options and also want some practical examples which can be given by guys like you who trade options. Please make it a little more clear. If I sell a NIFTY option can I square it off before expiry and also if I purchase NIFTY option can I square off my position before expiry. Is there anything that can resist me squaring off my positions. As I am thinking about covered call strategy, these things are important for me. Please help...

Thankyou

Subrata Bera.

 

[Karuna]

Subra,

Yes you can definitely square off nifty options before expiry because they are only exercisable on expiry day, since they are european. So if you sell nifty option you dont have to worry that you will be assigned before expiry and u can definitely square it off before that. Hope this helps.

Karuna

 

[subratabera]

Thankyou very much Karuna for your reply. Now I can think about my option strategies more seriously.

Thankyou.

Subrata Bera.