Noob question on option trading

[viju.rdk]

lets say i have rs20000 to invest
i bought a contract of ABAN : CA-1100-Aug at premium price of 110 (how many contracts can i buy?)
the price of the stock became 1200 at the end of Aug ....
so whats my profit?

 

[sameer999]

lets say i have rs20000 to invest
i bought a contract of ABAN : CA-1100-Aug at premium price of 110 (how many contracts can i buy?)
the price of the stock became 1200 at the end of Aug ....
so whats my profit?

u can buy option contracts only in lots. every security( stock) has a fixed lot size.

1 lot of aban has 400 shares of aban in it.

1 lot of suzlon has 3000 shares , so its like that.

U bought a contract , means 1 contract of 1 lot @ premium of 110 ,
total premium paid for buying 1 lot = 400x110= 44000 Rs.


If stocks price changes to 1200 at expiry then u will still be at loss.

buy price = 1100+110 = 1210 Rs. per share
selling price = 1200

so , 1200 - 1210 = -10

10 Rs. loss per share.


total loss = 10 x 400 = 4000 Rs.


Also your loss will be more than this coz i havnt considered the brokerages.

 

[viju.rdk]

now lets say i bought the above contract and when i bought it its price was more than 1100 .... so can i execute the order then and there to book my profit?

 

[sameer999]

plz clear your question, i dnt understand wht u mean.

 

[viju.rdk]

lets say i bought a contract of ABAN : CA-1100-Aug at premium price of 110
do i book my profit only after august or if the price of ABAN has risen such that its at say 1300...can i book my profit then..
in short...is it only the price at last day of aug that matters?

 

[sameer999]

lets say i bought a contract of ABAN : CA-1100-Aug at premium price of 110
do i book my profit only after august or if the price of ABAN has risen such that its at say 1300...can i book my profit then..
in short...is it only the price at last day of aug that matters?

Friend, listen, u buyed CA 1100 AUG @ 110

now if u dnt want to wait till expiry, u can exercise your option anytime before expiry. not compulsory that u hav to wait till expiry.

but if u exercise it before expiry, the difference is that u bought it at a premium of 110 and whn ABAN price in the market rises to 1300, means the premium will also rise from 110, let the premium now be 135.

If u want to exercise your option, your profit will be =

sell price - buy price
135-110 = 25 Rs. per share.

Net profit 25xlot size = 25x400 = 10000 Rs.

 

[nitinpatidar2006]

Friend, listen, u buyed CA 1100 AUG @ 110

now if u dnt want to wait till expiry, u can exercise your option anytime before expiry. not compulsory that u hav to wait till expiry.

but if u exercise it before expiry, the difference is that u bought it at a premium of 110 and whn ABAN price in the market rises to 1300, means the premium will also rise from 110, let the premium now be 135.

If u want to exercise your option, your profit will be =

sell price - buy price
135-110 = 25 Rs. per share.

Net profit 25xlot size = 25x400 = 10000 Rs.



My question here is : if u exercise ur call option at increase premium and earn profit its ok . is above procedure called as" writing options " ? is it right .

 

[sameer999]

My question here is : if u exercise ur call option at increase premium and earn profit its ok . is above procedure called as" writing options " ? is it right .

No, its calld as to square off your position n com out of your trade!

 

[nitinpatidar2006]

thx sameer , then what is "writing option" can u explain plz

 

[sameer999]

thx sameer , then what is "writing option" can u explain plz

writing options is selling the option , i,e short selling.

suppose u write/short sell a contract of call or put.
whn u write, u dont own that before.

wont advice to write option as its very risky n max profit is limited to premium earned but risk is unlimited.

also wont advice u to trade in F&O , frst gain gud knowledge then start atleast 3 months paper trade.


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