some doubts about short selling

#1
I am new to stock market and I learning options and futures trading through various web sites

My doubts

If I am bullish on market I can buy nifty call
If I am bearish on market I can buy nifty put

And what happen if I reverse this transaction
I mean if I am bullish on market I can short sell nifty put
And If I am bearish on market I can shot sell nifty Call

I am assuming that the market is going to down and I decide to short sell a nifty call ( for example jan6100CE ) is it possible?

I think the short selling in option is called "option writing" is it ?

and again if i short such a call when should i buy back that call , or what happen if i won't buy and the nifty index will settle on 5900 in January 27 will i get 200*50 in my account ?

Everyone saying do not short option and that is similar to buy an unlimited risk,
Can’t we set a stop loss for such trade and avoid unlimited risk? , if not why? , because we can set stop loss on equity short sell

What happen if i short sell NIFTY JUNE6600 CALL, the cmp is 171 I am sure the market will fall again in into 6000 or 5900 range on Feb or march
at that time i can buy back that call may be 50 or 60 rs am I right ? but I never find a tips or anything related to sell a June call anywhere.

and one more doubt why the nifty June call and put are trading so earlier ? before I thought we can only buy a call or put just 3 moth before its expiry date

Please help me with your knowledge

Thank u very much
santhosh
 
Last edited:
#2
i wil try to anser your questions one by one.............

yes it is true
If you are bullish on market you can buy nifty call
If you are bearish on market you can buy nifty put


converse is also true

if you are bullish on market you can short sell nifty put
And If you are bearish on market you can shot sell nifty Call

If you are assuming that the market is going to down and you decide to short sell a nifty call ( for example jan6100CE ).........then yes ,,,of course is it possible ...... and short selling in option is called "option writing"

the major difference is that.....................



if jan6100CE is trading at 90 so if you want to buy this call then you need only

90 into 50(lot size) = 4500 rs so if your view goes wrong your loss is just rs four thousand five hundred.................and if your view is correct you can gain unlimited


now if you short sell the same contract you need near about thirty thousands rs ( it is margin required to play one lot of nifty) and you recieve....
four thousand five hundred as premium........................so my freind if your view goes wrong then you are going to loooooose thirty thousands rs...



yes you can place a stoploss to your shorted options positions ...............but what will you do if market opens with huge gapppppppppppppp:p
 
Last edited:
#3
thank u rananjay00007

You are right if the market open with a huge gap the stop loss won't hit and the result may be a huge loss
but an option trader only get profit if the market moves up or down and the market is flat it moves side wise he won't get any profit

at the same time if one short sell a put or call and market goes side wise still he get profit because of time value change
 
Last edited:
#4
in option writing the risk is always...moreeeee.............than the gain............but it is also true that 75 percent times it is option writer who wins.................
 
#5
consider a situation
I sold a JAN6200CALL on Dec 30 at 70 rs per lot

Trader B bought that call from me

If the call go down to 40Rs on January second or 3rd week i should buy back that call and i will get a 30 point profit ( I will close my trade and enjoy the profit of 30 points)

But i am really confusing this part

on the settlement day that is January 27 the call settled at 100 rs per lot and the option buyer (Trader B) who like to exercise
that option then what happen?
Should I buy that again , because I sold that call to Trader B ,
How the exchange identify that I sold an option earlier to the Trader B

please help
i am really confused about exercising an option
 
Last edited:

praveen taneja

Well-Known Member
#6
Let me give u an example you write a put of 6100 and overnight PM reasign due to excess pressure mkt would open Gaaaaaaaaaaaaaaaaaaaappppppppppp down to 5700 all ur portfolio would be sold by broker at open even if mkt recover later u would get only tears so option writer always put lots of cash in a/c or hedge before writing like when they write 6100 put they take 5900 put too as per my lil knowledge tells
 

S S

Well-Known Member
#7
I am new to stock market and I learning options and futures trading through various web sites

My doubts

If I am bullish on market I can buy nifty call
If I am bearish on market I can buy nifty put

And what happen if I reverse this transaction
I mean if I am bullish on market I can short sell nifty put
And If I am bearish on market I can shot sell nifty Call

I am assuming that the market is going to down and I decide to short sell a nifty call ( for example jan6100CE ) is it possible?

I think the short selling in option is called "option writing" is it ?

and again if i short such a call when should i buy back that call , or what happen if i won't buy and the nifty index will settle on 5900 in January 27 will i get 200*50 in my account ?

Everyone saying do not short option and that is similar to buy an unlimited risk,
Cant we set a stop loss for such trade and avoid unlimited risk? , if not why? , because we can set stop loss on equity short sell

What happen if i short sell NIFTY JUNE6600 CALL, the cmp is 171 I am sure the market will fall again in into 6000 or 5900 range on Feb or march
at that time i can buy back that call may be 50 or 60 rs am I right ? but I never find a tips or anything related to sell a June call anywhere.

and one more doubt why the nifty June call and put are trading so earlier ? before I thought we can only buy a call or put just 3 moth before its expiry date

Please help me with your knowledge

Thank u very much
santhosh
It is like saying, I am new to cricket and have never played it. I want to open the batting line-up where the opposition team has ballers from all other major ckrcketing teams in the world.

What are the chances that I make a century or a double century. How many Sixes can I hit? Will I be successful in hitting sixes on all the six balls of some one over?

Totally a DUMB question. In all probabilities, one would be out on the first delivery.

What makes you think that you could do otherwise in the stock markets?
 
#8
@ ss

ok
but dear friend i never told i have 1000 rs capital and i want to make 5 lacks in one year like that

all question are generated in my mind while reading something about stock market thats all

I dont no how u interpret my question
 
#9
consider a situation
I sold a JAN6200CALL on Dec 30 at 70 rs per lot

Trader B bought that call from me

If the call go down to 40Rs on January second or 3rd week i should buy back that call and i will get a 30 point profit ( I will close my trade and enjoy the profit of 30 points)

But i am really confusing this part

on the settlement day that is January 27 the call settled at 100 rs per lot and the option buyer (Trader B) who like to exercise
that option then what happen?
Should I buy that again , because I sold that call to Trader B ,
How the exchange identify that I sold an option to the Trader B

i am really confused about exercising an option

dear reader now i am waiting for an answer for this question please help me
 
Last edited:

AW10

Well-Known Member
#10
As you bought back your short position at 40 rs, your obligation to the buyer is over. You are out of the mkt at this stage. If buyer excercises his option, then Exchange randomly assigns that to the writers who have open position at that time.

But, if you don't buyback the short call option, and mkt goes up then you are at the mercy of market and obiliged to pay the settlement price on final settlement day.

------
Let me crack some myths of option writing - There is nothing called unlimited loss or unlimited profit.. Always there is some limit to it. Market never changes by infinite %. It is always a finite number. But, this number can be large..and in some cases, large enough to blow your account (or your credit rating).

Statistically, more then 85 to 90% of open option contracts expire out of money on the contract expiry date.. i.e. option writer of those contract ends up keeping all the premium. In some cases, even if option expires ITM, the writer might be in profit cause he would have collected lot more premium while selling it, i.e. market settles below is breakeven point.

For Option buyer to make money, market has to move in right direction, and beyond their breakeven point. If market goes in reverse or market does not move enough, they are the looser and writer is winner. So imo, 2 out of 3 conditions i.e. 66% time, writer is having an edge whereas buyers edge is just 33%.

Having said that, it is certainly lot more risky to have naked short positions. But if one knows how to manage the risk (and if one doesn't know how to manage the risk, then they shdn't be trading at all), and discplined enough to ACTIVELY MANAGE IT, the short selling is the way to go for option trading.

Happy option trading.
 

Similar threads

Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Name:Phone:
Email:City:
State:
Are you a day trader?