Options basic question

[niceman]

Hi Com,
Thanks for the quick reply.
You wrote .."...you are giving more time for the option."
Frankly, I just missed this aspect. My thinking was just one sided.
Obviously, options unlike investing is multi-sided.
Thanks for pointing this out.
I will now spend some time studying credit spreads and then try after experimenting without actually buying or selling.
Regards.
Niceman

 

[rags_super]

Hi All,

Nice to see your replies.

@niceman - I think Nifty may go near 8900 making new high. Suddenly good news is flowing. Trade deficit is narrowing. It's best to play safe.

All the best!

Cheers ...

 

[umeshmandal]

Please name 5 (five) Stock Options that are most liquid on NSE ! The BUY / SELL spread should not be big!

 

[Prium]

STT scenario does not come when you sell first. you pay STT on your sell leg, so you can let your sold option expire worthless.

this is where the problem is...any good news from govt can put a spike in index and its options. if you can actively manage your position and have a matrix for all possible/conceivable scenarios, then go ahead with your plan.

the temptation of getting more premium by going into next month series has its disadvantages as well...you are giving more time for the option. What is 8700 for jan series is just 2 weeks; what 8700 for feb series is 4-5 weeks.
if the run upto the budget is marked by spikes, then you are in trouble. As you know, the market ran up even before election results were due, the same thing could happen here.


agreed. just make sure that you start off small and keep tight SL or better still, go for credit spread so that you know your max risk.



upload the file on to some file sharing website/dropbox and share url if you think the contents would help our members.

thanks.
all the best.

Thank you comm .. this is perhaps the most educating thread I have read and has cleared so many things .. I was always unsure if we can play only with premiums to profit/loss and don't have to wait till expiry - In fact, this is what has kept me from ever buying a single lot of any option!! So here I am expressing my deepest gratitude and thanks! I have a few questions of mine as well which I will direct to you .. please answer

Regards.

 

[Prium]

Comm .. I have a few questions as well ..

1. Say as of today (16th Feb 2015) I buy 1 lot of NIFTY CE 8800 @124.25. Underlying is at 8805. Hence, the Total Premium = 124.25, Intrinsic Value = 8805-8800 = 5 and Time Value = 124.25-5 = 119.25. And I would spend 25x124.25 = 3106.25 to buy this option. Is this correct?

2. Now say NIFTY rises to 8830 intraday. Even though intrinsic value has increased by 8830-8805 = 25, would the premium also increase by 25? Or would the increase be less due to other factors (volatility/time)? Or would it be more?

3. Say the premium only increases by 25, my total profit would be 25x25 = 625, thus yielding 625/3106.25 = 20%. Is this correct?

4. In order to square off, I just need to press the Square off button/Sell button, not actually sell a call option. Is this correct?

5. Is there any way to know/see the relation between price vs intrinsic value vs time value like a graph? Everywhere I read, everybody talks of profits in terms of the intrinsic value but not the premium play. I think I will start by only doing intraday options trading which would mean only doing premium play but I cannot seem to know the relation between premium and price.

6. Can you please post some links to appropriate resources for learning options? Videos, reading material?

Thanks a lot once again!!