Hello All @ Tradeji- Index Options on Expiry

[anoopdas83]

Hello All

I know some very basics of trading.
Please answer my doubt below.

Situation 1: I bought 100 Nifty Call Options of Strike Price 5200 at a premium of Rs.45 per Option. So i paid Rs.4500.
This Option Expires on 25 March 2010.

Question 1: Does My returns on expiry depend on the Spot Price or the current premium.
Question 2: What will be my profit after expiry if the Spot Price is 5210?
Question 3:What will be my loss after expiry if the Spot Price is 5190?

Thankyou in Advance
Regards
Anoop Das

 

[AW10]

Hello All

I know some very basics of trading.
Please answer my doubt below.

Situation 1: I bought 100 Nifty Call Options of Strike Price 5200 at a premium of Rs.45 per Option. So i paid Rs.4500.
This Option Expires on 25 March 2010.

Here are answers to your question. Better will be to spend time to get basic reward, risk concepts correctly.

Question 1: Does My returns on expiry depend on the Spot Price or the current premium.

It depends on the spot price at expiry called at Settlement price. NSE publishes settlement price everyday.. which is approximately equal to the last closing price of the day (minor changes cause NSE has rule to do adjustment to final closing price to take care of manipulation by mkt makers).

Question 2: What will be my profit after expiry if the Spot Price is 5210?

You 5200 option will expire in-the-money and will be worth 10 rs. So on settlment, you will get back 100*10 = 1000 rs credited to yr acct. Not to forget that you need to pay brokerage and taxes for this as well.. So net credit will be slightly less then 1000 rs.

But, you are still in loss, cause u paid 4500 rs for this position. And hence yr net loss is 3500 rs.

Question 3:What will be my loss after expiry if the Spot Price is 5190?

You 5200 option will expire worthless (in crude language - toilet paper has more value then this option). Hence you don't get anything for this.
Basic rule is all Out-of-money options expire worthless on final settlement. All in-the-money option are settled for their real /intrinsic value.

So, you loose whole 4500 rs on this position.

Hope this helps.
Happy Trading

 

[anoopdas83]

Thanks , this was a very clear reply to my Queries