Pros and cons future and option
- Thread starter lokanathpai
- Start date
What this is all about is a costless collar.
if one buys a far month CE at the current levels, time decay will erode the premium. also one will get a debit because the PE current month has to be bought from own pocket money.
thats way selling the near month CALL and using the premium to fund the current month PUT sounds like a good idea. Buying a Near month future instead of CALL avoid time decay.
if the trade goes against us and if one holds till expiry of the current month then the PUT value should be theoretically equal the Near month Future and one could close everything.
if the trade goes as per plan and the underlying reaches the far month CALL strike then one could close all the legs for profit.
if one buys a far month CE at the current levels, time decay will erode the premium. also one will get a debit because the PE current month has to be bought from own pocket money.
thats way selling the near month CALL and using the premium to fund the current month PUT sounds like a good idea. Buying a Near month future instead of CALL avoid time decay.
if the trade goes against us and if one holds till expiry of the current month then the PUT value should be theoretically equal the Near month Future and one could close everything.
if the trade goes as per plan and the underlying reaches the far month CALL strike then one could close all the legs for profit.
My calculation as follows:
Taking today's close
Nifty @ 8100
8050 June put 43
8200 July call 130
If my strategy is implemented I will receive
Credit of Rs 87/- (130 - 43)
At June expiry if nifty @ 7900
-200 on future
+150 on put
+130 premium recd on sold call
I.e 37/- profit
If NIFTY @ 8000 (-100+50+130-43)
I will make 37/- profit
If NIFTY @ 8100, I will make 130/- profit
If NIFTY @ 8200 (100-43+130) I will make 187/- profit. I do not see any lose in this strategy. I don't know where I am missing.
Because there is no strategy in the world which makes no loss.
Implementing this strategy for series will result into loss as premium on July call will be around same or more. I think if we introduce time decay of around 15-20 days this will turn into profit That is implementing this strategy for July/Aug series.
Taking today's close
Nifty @ 8100
8050 June put 43
8200 July call 130
If my strategy is implemented I will receive
Credit of Rs 87/- (130 - 43)
At June expiry if nifty @ 7900
-200 on future
+150 on put
+130 premium recd on sold call
I.e 37/- profit
If NIFTY @ 8000 (-100+50+130-43)
I will make 37/- profit
If NIFTY @ 8100, I will make 130/- profit
If NIFTY @ 8200 (100-43+130) I will make 187/- profit. I do not see any lose in this strategy. I don't know where I am missing.
Because there is no strategy in the world which makes no loss.
Implementing this strategy for series will result into loss as premium on July call will be around same or more. I think if we introduce time decay of around 15-20 days this will turn into profit That is implementing this strategy for July/Aug series.
Last edited:
hi ,
i have a question (total newbie)
suppose i buy a put , zeel-440 strike- 14.55 premium and shares - 1 Lot (1300)
1. I would make money when price goes below 425 right ?
2. If price goes 450 , how much loss do I make ?
Is it 1300*14.55 = -18915
Or
Is it 440 * 14.55 = -6402
this is my first post on Options .. would be great if anyone recommends basic option book for understanding .
Thanks
i have a question (total newbie)
suppose i buy a put , zeel-440 strike- 14.55 premium and shares - 1 Lot (1300)
1. I would make money when price goes below 425 right ?
2. If price goes 450 , how much loss do I make ?
Is it 1300*14.55 = -18915
Or
Is it 440 * 14.55 = -6402
this is my first post on Options .. would be great if anyone recommends basic option book for understanding .
Thanks
Here is option basic for you.
HOW TO BUY NIFTY CALL-PUT OPTION AND CALCULATE PROFIT OR LOSS
Everyday we listen about Nifty Option price closing up or down,Call Option,Put Option, market bullish or bearish .We wonder how to trade in Nifty Option and earn profit with limited loss and unlimited profit. What are the points we have to keep in mind while trading Nifty Option, how to calculate the profit and loss.
First of all we have to determine the direction of the market whether market will be up or down.We can take the position in Nifty Option in the expected direction bullish or bearish.If we are bullish then we can buy Nifty Call Option and if bearish then we can buy Nifty Put Option.What trade we can execute and what would be our position in terms of profit and loss are explained below with examples.
If current price of Nifty is 2900 and Nifty Call Option Strike Price 3000 and Put Option Strike Price 2800 in January is 100=00 INRs and last date of expiry is on nth January. What trades we can do in Call and Put Option of Nifty and what will be our profit and loss position is as stated below.
If bullish we can Buy Nifty Call Option
(1)Buy Nifty Call Option January Strike Price 3000@100 INRs. Lot Size 50
Premium Paid=100*50=5000 INRs.
Maximum Loss=5000=00 INRs.
Maximum Profit=Unlimited
Break-even Price=3100
We can sell Nifty Call Option which we have bought anytime till last day of expiry i.e., nth January and can book profit or loss. If we do not sell Nifty Call Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.
Different Possibilities with our Nifty Call Option Buy position
(1) Nifty Call Option price 140 and sold before expiry then
140-100=40*50=2000.00 INRs. Profit
(2)Nifty Call Option price 60 and sold before expiry then
100-60=40*50=2000 INRs. Loss
(3)Nifty settlement price 3200 and we have not sold Nifty Call Option till expiry then
3200-3000=200*50=10,000-5000=5000=00 INRs. Profit
(4)Nifty settlement price equals to or below 3000 and we have not sold Nifty Call Option till expiry then
5000=00 INRs Loss
This is the maximum loss we can have even if Nifty falls to any level beyond 3000.
(5)Nifty settlement price 3100 and we have not sold Nifty Call Option till expiry then
3100-3000=100*50=5000-5000=0.0 INRs. No Profit No Loss
If bearish we can Buy Nifty Put Option
(1) Buy Nifty Put Option Strike Price 2800.@100 INRs. Lot Size=50
Premium Paid=100*50=5000.00 INRs.
Maximum Loss=5000.00 INRs.
Maximum Profit=Unlimited
Break-even Price=2700
We can sell Nifty Put Option bought anytime till last day of expiry i.e., nth January and can book profit or loss.If we do not sell Nifty Put Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.
Different Possibilities with our Nifty Put Option Buy position
(1) Nifty Put Option price 140 and sold before expiry then
140-100=40*50=2000.00 INRs. Profit
(2)Nifty Put Option price 60 and sold before expiry then
100-60=40*50=2000 INRs. Loss
(3)Nifty settlement price 2600 and we have not sold Nifty Put Option till expiry then
2800-2600=200*50=10,000-5000=5000=00 INRs. Profit
(4)Nifty settlement price equals to or above 2800 and we have not sold Nifty Put Option till expiry then
5000=00 INRs Loss
This is the maximum loss we can have even if Nifty rises to any level beyond 2800.
(5)Nifty settlement price 2700 and we have not sold Nifty Put Option till expiry then
2800-2700=100*50=5000-5000=0.0 INRs. No Profit No Loss.
What is the advantage of buying Option compared to Future.Maximum loss is fixed and predefined.We cannot lose more then the premium paid to buy the Option under any circumstances and it is known to us before we trade.We can square up the Option position anytime after buying just like Future.We have to pay only amount of premium and not the margin which is required for buying future.
HOW TO BUY NIFTY CALL-PUT OPTION AND CALCULATE PROFIT OR LOSS
Everyday we listen about Nifty Option price closing up or down,Call Option,Put Option, market bullish or bearish .We wonder how to trade in Nifty Option and earn profit with limited loss and unlimited profit. What are the points we have to keep in mind while trading Nifty Option, how to calculate the profit and loss.
First of all we have to determine the direction of the market whether market will be up or down.We can take the position in Nifty Option in the expected direction bullish or bearish.If we are bullish then we can buy Nifty Call Option and if bearish then we can buy Nifty Put Option.What trade we can execute and what would be our position in terms of profit and loss are explained below with examples.
If current price of Nifty is 2900 and Nifty Call Option Strike Price 3000 and Put Option Strike Price 2800 in January is 100=00 INRs and last date of expiry is on nth January. What trades we can do in Call and Put Option of Nifty and what will be our profit and loss position is as stated below.
If bullish we can Buy Nifty Call Option
(1)Buy Nifty Call Option January Strike Price 3000@100 INRs. Lot Size 50
Premium Paid=100*50=5000 INRs.
Maximum Loss=5000=00 INRs.
Maximum Profit=Unlimited
Break-even Price=3100
We can sell Nifty Call Option which we have bought anytime till last day of expiry i.e., nth January and can book profit or loss. If we do not sell Nifty Call Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.
Different Possibilities with our Nifty Call Option Buy position
(1) Nifty Call Option price 140 and sold before expiry then
140-100=40*50=2000.00 INRs. Profit
(2)Nifty Call Option price 60 and sold before expiry then
100-60=40*50=2000 INRs. Loss
(3)Nifty settlement price 3200 and we have not sold Nifty Call Option till expiry then
3200-3000=200*50=10,000-5000=5000=00 INRs. Profit
(4)Nifty settlement price equals to or below 3000 and we have not sold Nifty Call Option till expiry then
5000=00 INRs Loss
This is the maximum loss we can have even if Nifty falls to any level beyond 3000.
(5)Nifty settlement price 3100 and we have not sold Nifty Call Option till expiry then
3100-3000=100*50=5000-5000=0.0 INRs. No Profit No Loss
If bearish we can Buy Nifty Put Option
(1) Buy Nifty Put Option Strike Price 2800.@100 INRs. Lot Size=50
Premium Paid=100*50=5000.00 INRs.
Maximum Loss=5000.00 INRs.
Maximum Profit=Unlimited
Break-even Price=2700
We can sell Nifty Put Option bought anytime till last day of expiry i.e., nth January and can book profit or loss.If we do not sell Nifty Put Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.
Different Possibilities with our Nifty Put Option Buy position
(1) Nifty Put Option price 140 and sold before expiry then
140-100=40*50=2000.00 INRs. Profit
(2)Nifty Put Option price 60 and sold before expiry then
100-60=40*50=2000 INRs. Loss
(3)Nifty settlement price 2600 and we have not sold Nifty Put Option till expiry then
2800-2600=200*50=10,000-5000=5000=00 INRs. Profit
(4)Nifty settlement price equals to or above 2800 and we have not sold Nifty Put Option till expiry then
5000=00 INRs Loss
This is the maximum loss we can have even if Nifty rises to any level beyond 2800.
(5)Nifty settlement price 2700 and we have not sold Nifty Put Option till expiry then
2800-2700=100*50=5000-5000=0.0 INRs. No Profit No Loss.
What is the advantage of buying Option compared to Future.Maximum loss is fixed and predefined.We cannot lose more then the premium paid to buy the Option under any circumstances and it is known to us before we trade.We can square up the Option position anytime after buying just like Future.We have to pay only amount of premium and not the margin which is required for buying future.
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