Hello All,
I am confused on the simple concept of options call. With your guidance I will figure out logic for other transactions
Assume
Today 04 Feb 2014
Expiry 26 Feb 2014
Nifty CMP 6040
Lot 100
Option Trade CE
Strike Price 6200
Premium 150
Brokerage 0 (Just to make calculation simple)
Cost of Trade Max loss = 150 * 100 = 15,000
Scenario 1
On 4th Feb Afternoon Nifty CMP goes to 6070. Premium for Nifty CE 6200 now is 155.
In this scenario if I sell the Call @ 2:30 PM; would I make a profit of (155 * 100) - (150 * 100) = 500?
I have seen lot of profit/loss graphs and it suggest that the trade can be in profit only after if the current price is above strike price.
Break even formula is Strike + Premium. i.e. 6200 + 150 = 6350.
If you notice scenario # 1;
I have already made a profit of 500 even though the CMP is less than Strike price.
Even the break-even formula doesn't hold true as I am already in profit
Somewhere I am horribly wrong in my understanding.
Appreciate if you can help in understanding.
Scenario 2
On 4th Feb Afternoon Nifty CMP goes below 6070; then the Nifty CE 6200 premium would be 130.
Now if i Sell the call then the loss would be (130 * 100) - (150 * 100) = - 2000.
I assume the above calculation is correct.
Thanks and Regards
Amit
I am confused on the simple concept of options call. With your guidance I will figure out logic for other transactions
Assume
Today 04 Feb 2014
Expiry 26 Feb 2014
Nifty CMP 6040
Lot 100
Option Trade CE
Strike Price 6200
Premium 150
Brokerage 0 (Just to make calculation simple)
Cost of Trade Max loss = 150 * 100 = 15,000
Scenario 1
On 4th Feb Afternoon Nifty CMP goes to 6070. Premium for Nifty CE 6200 now is 155.
In this scenario if I sell the Call @ 2:30 PM; would I make a profit of (155 * 100) - (150 * 100) = 500?
I have seen lot of profit/loss graphs and it suggest that the trade can be in profit only after if the current price is above strike price.
Break even formula is Strike + Premium. i.e. 6200 + 150 = 6350.
If you notice scenario # 1;
I have already made a profit of 500 even though the CMP is less than Strike price.
Even the break-even formula doesn't hold true as I am already in profit
Somewhere I am horribly wrong in my understanding.
Appreciate if you can help in understanding.
Scenario 2
On 4th Feb Afternoon Nifty CMP goes below 6070; then the Nifty CE 6200 premium would be 130.
Now if i Sell the call then the loss would be (130 * 100) - (150 * 100) = - 2000.
I assume the above calculation is correct.
Thanks and Regards
Amit
