Options: Need to clarify a few doubts

ethan hunt

Well-Known Member
#1
Hi,,

Experienced Option Traders & Seniors:

I am posting this post for clarifying some doubts regarding options using a hypothetical example. My questions are more on safety of capital, exchange/broker's operations, margin requirements & settlement procedure etc:

TRADE EXAMPLE:

Short 1050 CALL at 25
and
Short 1100 PUT at 30

Both positions are open till expiry & will not be covered. Rough calculation shows 5 profit at the time of expiry.

My questions:

1) Is this trade a perfectly safe trade with no chance of loosing money, which ever way the market goes ?

2) What is the worst case scenario of loosing money in this trade ?

3) Should I invest really big in such a trade, if I am happy with the return % ?

4) Do I need to keep MTM funds for daily margin requirements ?

5) I will hold the positions till expiry & will not cover it. At what price will the trade will be settled by the exchange ? Is it at the spot price OR the settlement/expiry price is discovered thru any other mechanism ?

6) Do I need to compulsarily sqaure off the trades in order to book profit ? OR I will get profit automatically from exchange.

7) Margin: Do I need to pay margin for both the lots or only one ?

8) Will there be any charges / bkg or otherwise if options are not covered & are settled by exchange on expiry ?

Thanks,
 

Blitzz

Well-Known Member
#2
Hello Mr Hunt

This message will self destruct in 30 secs.

1) no its not safe
2) You can loose all the money in your account
3) No donot do such trade. Not good for beginners
4) Yes
5) Spot Price
6) It will be auto squared off at expiry
7) Depends on broker. As the risk is one sided you wont require 2 lots margin.
8) Yes

So you going to accept the mission agent Hunt?

5
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3
2
1

 

gunsho

Well-Known Member
#4
I am back as a ghost with no protocols...lol

Thanks for reply.

Q1) Kindly explain why it is a risky trade
What if the underlying stock goes above 1100 or below 1050. You can calculate the losses. Many in this forum uses Options Oracle which is a free tool where you can find the risk/reward on various market situation until expiry.

Usually the put will be at lower strike price and call at higher strike price (short strangle). Recently Dan has started a thread on basics of Options which is going great.
 

VJAY

Well-Known Member
#5
Hi,,

Experienced Option Traders & Seniors:

I am posting this post for clarifying some doubts regarding options using a hypothetical example. My questions are more on safety of capital, exchange/broker's operations, margin requirements & settlement procedure etc:

TRADE EXAMPLE:

Short 1050 CALL at 25
and
Short 1100 PUT at 30

Both positions are open till expiry & will not be covered. Rough calculation shows 5 profit at the time of expiry.

My questions:

1) Is this trade a perfectly safe trade with no chance of loosing money, which ever way the market goes ?

2) What is the worst case scenario of loosing money in this trade ?

3) Should I invest really big in such a trade, if I am happy with the return % ?

4) Do I need to keep MTM funds for daily margin requirements ?

5) I will hold the positions till expiry & will not cover it. At what price will the trade will be settled by the exchange ? Is it at the spot price OR the settlement/expiry price is discovered thru any other mechanism ?

6) Do I need to compulsarily sqaure off the trades in order to book profit ? OR I will get profit automatically from exchange.

7) Margin: Do I need to pay margin for both the lots or only one ?

8) Will there be any charges / bkg or otherwise if options are not covered & are settled by exchange on expiry ?

Thanks,
You will start loossing if close will be abv 1155 and below 995 :) its your BE ranges .....so if close will abv/blw this range your loss starts.....means start of unlimited losses....
 
#6
#8
Dear Amit44

You answered in a straight and simple way, so it is my duty to hold what I promised. My answer will be as simple as yours:

I thank many times to any post because only to show that I was reading it. In many cases it is like that and in other cases it is because I support some body or I really find the post has a deep meaning and I can agree with what is posted. Out of the box answers as yours is.

Have a nice night over there / Dan :)
 
#10
Dear Dan,

As you are the Master of Options here. I wished you could have corrected the mistake as you do in many posts. I think you overlooked this post and missed it
Dear Amit44

Will keep your post with respect in my head :thumb: and act according to it in the future, even I not have the time to control or comment all what is posted about options in dept, but when doing so in the future, your pointer is taken.

Dan / :)
 

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