Query on Nifty Put

#1
Seniors,

Would like to know the following:

Suppose I buy NIFTY 50 PUT at a Strike Price of Rs.5500 at a premium of 16.50. Expiry is 30th September, 2010. The spot price is Rs.5717.85. I assume my breakeven will be Rs.5500 - 16.50 = Rs.5483.50. So for me to breakeven, the spot should be 5483.50.

If on 20th September, 2010, the Spot is Rs.5300, then the profit I would be making is Rs.5483.50 - Rs.5300 = 183.50 x 50 = Rs.9,175 Profit,

Please advise whether I am correct in my calculation.
 

rkkarnani

Well-Known Member
#2
Seniors,

Would like to know the following:

Suppose I buy NIFTY 50 PUT at a Strike Price of Rs.5500 at a premium of 16.50. Expiry is 30th September, 2010. The spot price is Rs.5717.85. I assume my breakeven will be Rs.5500 - 16.50 = Rs.5483.50. So for me to breakeven, the spot should be 5483.50.

If on 20th September, 2010, the Spot is Rs.5300, then the profit I would be making is Rs.5483.50 - Rs.5300 = 183.50 x 50 = Rs.9,175 Profit,

Please advise whether I am correct in my calculation.
Not considering brokerage and other charges, your calculation is correct.
 

rajeabc

Well-Known Member
#3
Seniors,

Would like to know the following:

Suppose I buy NIFTY 50 PUT at a Strike Price of Rs.5500 at a premium of 16.50. Expiry is 30th September, 2010. The spot price is Rs.5717.85. I assume my breakeven will be Rs.5500 - 16.50 = Rs.5483.50. So for me to breakeven, the spot should be 5483.50.

If on 20th September, 2010, the Spot is Rs.5300, then the profit I would be making is Rs.5483.50 - Rs.5300 = 183.50 x 50 = Rs.9,175 Profit,

Please advise whether I am correct in my calculation.
roughly it would be around your price but in real your profit would be little more as it will have TIME component as well. If you assume that Spot price 5300 at 30th Sept then your calculation is perfectly fine.
 
#4
Also, please guide me on the following:

On 14/09/10, the NIFTY 50 Put was at Spot 5795.15 and I buy at Strike Price of 5900.00 at a premium of 132.75 for Expiry on 30th September, 2010.

On 15/09/10, the NIFTY 50 Put was at Spot 5862.20 and I buy at Strike Price of 5900.00 at a premium of 96.50 for Expiry on 30th September, 2010.

ONE)
What is see from above is that the Price of Option has come down from 132.75 to 96.50, under the circumstance if I buy on 15/09/10, i would be in profit if it does not go up any further and instead go down, wouldnt this be the best option for me.

TWO)
Why the Price of Option is more at 132.75 on 14/09/10 and 96.50 on 15/09/10.

THREE)
Would it not be better to purchase on 15/09/10 instead of 14/09/10.
 

rajeabc

Well-Known Member
#5
Also, please guide me on the following:

On 14/09/10, the NIFTY 50 Put was at Spot 5795.15 and I buy at Strike Price of 5900.00 at a premium of 132.75 for Expiry on 30th September, 2010.

On 15/09/10, the NIFTY 50 Put was at Spot 5862.20 and I buy at Strike Price of 5900.00 at a premium of 96.50 for Expiry on 30th September, 2010.

ONE)
What is see from above is that the Price of Option has come down from 132.75 to 96.50, under the circumstance if I buy on 15/09/10, i would be in profit if it does not go up any further and instead go down, wouldnt this be the best option for me.

Yes It would be a best option to buy on 15th but it is always not easy to predict market's motion.

What will happen if price stay at same level ? You Time Value in Option Cost will Vanish on Exp.

TWO)
Why the Price of Option is more at 132.75 on 14/09/10 and 96.50 on 15/09/10.

Because it has more Intrinsic Value in it. Have a look on the attached photo below for better understanding. on 15th Option looks cheap but if Price stay same(~5862 ) you will be losing more money if you buy on 15th.

THREE)
Would it not be better to purchase on 15/09/10 instead of 14/09/10.
Yes but depend how fast it will fall and how much.
Answers inline. Have a look on the attached photo for better understanding of Intrinsic and Time Value. Also some time Option price may differ theoretically and practically. Its depend on demand and supply. If you try to buy PUT of a stock which is falling you might have to pay more premium instead if you buy when it is settled and direction is not clear.

 
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#6
Have the following query:

As of close of 15/09/10, the Nifty Spot is 5860. I buy 1 Lot NIFTY 6000 Put at a premium of 157.00. As far as what I have learned from traderji links, senior members, my breakeven would be 6000-157.00 = 5843.00.

If Spot Nifty is 5843.00 on 15/09/10 or goes below that I make profit, is it correct, please let me know.

If Spot Nifty goes to 5600 then, i would be in profit i.e. 5843.00 - 5600.00 = 243.00 x 50 = Rs.12,150.00 Profit, would this be correct.

Thank you for the guidance.
 

rajeabc

Well-Known Member
#7
Have the following query:

As of close of 15/09/10, the Nifty Spot is 5860. I buy 1 Lot NIFTY 6000 Put at a premium of 157.00. As far as what I have learned from traderji links, senior members, my breakeven would be 6000-157.00 = 5843.00.

If Spot Nifty is 5843.00 on 15/09/10 or goes below that I make profit, is it correct, please let me know.

Yes , if you have not paid extra premium ( I explained Demand and Supply in few posts below)

If Spot Nifty goes to 5600 then, i would be in profit i.e. 5843.00 - 5600.00 = 243.00 x 50 = Rs.12,150.00 Profit, would this be correct.

when ? Its also depend. Because , I am sure you would be knowing this , premium has two portions in its price , Premium price= Intrinsic Value + Time Value (more days you have more value you have. It is an exponential factor so decay very fast with time).

Here is your case(calculation you have shown) you will be making minimum 243*50 . But if Nifty reaches 5600 Before expiry then you will get some extra quids if you sell

In General Profit would be = Premium @ Sold - [email protected] = (SPot [email protected] -Spot Price @ SOld ) + (Time Value in Premium 2 - Time Value in Premium 1)
Where Time Value in Premium 2 < Time Value in Premium 1


Thank you for the guidance.
Please find answers in lines. Hope I am making some sense.
 
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