Options - Some basic questions

#1
Hi Pros!

I have been trading stocks for past 5 yrs. Recently Options caught my eye. I have read the theory but confused about how it really works in the indian stock market scenario.

1. Lets say Nifty 5800 Call is showing as 41.00. How much cash do I need in my account to buy it? Is it Rs 4100 for 1 lot?
2. Lets say Nifty 5800 Call price increased to 45.00 1 day later. Can I sell my call option and make profit of Rs 400 or am I bound to wait till expiry?
3. Does this work differently for individual stock options (I mean non-index based options)?
4. Can I use standard stock charts to make decisions for options? Is there any downfall of doing so?

I am sorry if my questions sound very basic but I need the answers to break the barrier.

Thanks
Prodigi
 
#2
u need 41*50 to buy one lot; You can sell it any time, suggested not to leave it to expire as when it gets exercised, there seem to be some extra taxes; No, it works the same; You can use stock charts the downfall being the fact that the option prices do have time value which decays all the time resulting in a loss or less profit e.g. if a stock has moved from 590 to 593, u straightaway get rs.3 but if u had bot a call option in a rangebound market, the price might have gone from 10 to 10.5 or even 8 although the stock has moved in ur favour.
DO DUE DILIGENCE, I have lost money trading options without knowing them
 
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#3
Thanks for your answer. Clears almost all doubts.

One question remains. How do I track and do tech analysis on Options on a day to day basis?

What are tools of the trade? Can anyone point me to some websites or softwares?
 
#4
There is so much material available on options on Traderji. I suggest you start with a thread started by DanPickUp. http://www.traderji.com/options/66266-option-trading-danpickup.html

Also suggest you understand basic option greeks in order to understand option pricing. Trading in Options is different from trading in stocks, meaning that they don't behave like stock prices. An option may not necessarily go up even if the underlying goes up. I'm also in the learning boat along with you, so good to have you on board :thumb:
 
#5
u need 41*50 to buy one lot; You can sell it any time, suggested not to leave it to expire as when it gets exercised, there seem to be some extra taxes; No, it works the same; You can use stock charts the downfall being the fact that the option prices do have time value which decays all the time resulting in a loss or less profit e.g. if a stock has moved from 590 to 593, u straightaway get rs.3 but if u had bot a call option in a rangebound market, the price might have gone from 10 to 10.5 or even 8 although the stock has moved in ur favour.
DO DUE DILIGENCE, I have lost money trading options without knowing them
Can you please clarify which extra taxes are applicable in case an option or future is left to expire vis a vis squaring up ?
 

pratapvb

Well-Known Member
#6
Can you please clarify which extra taxes are applicable in case an option or future is left to expire vis a vis squaring up ?
when bought in-the-money are left to expire there will be extra tax. Actually the tax is equal to Equity level taxes as opposted to derivaties. This is because bought ITM expiry (=exercising) is treated as-if one is taking delivery (and hence equity level taxes) except that they are settled in cash
 
#7
when bought in-the-money are left to expire there will be extra tax. Actually the tax is equal to Equity level taxes as opposted to derivaties. This is because bought ITM expiry (=exercising) is treated as-if one is taking delivery (and hence equity level taxes) except that they are settled in cash

Is this applicable both for option buyers and sellers ?
I have actually bought a Infy [email protected] 3300/- and sold a Put and a call @3300/- strike price all 3 expiring 31-oct
Before seeing this thread, I was thinking of allowing ALL to expire even if the closing price is above 3300/-as the loss i make in the call, is made up by the Future
I was not aware that the STT can be 100 times if allowed to expire vs of what i would pay in case of squaring up.

http://teluguinvestor.com/blog/equities/stt-calculator-for-options-square-off/
Is this post correct and applicable in my case also where in I have sold the options?

So Is it advisable to buy the call and the put back and sell the future before the closing bell even if i have to lose a few Rs per share in the process as it may be difficult to get the same price in both transactions due to volatility on the expiry day ?

Thanks for advising
 
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