hi
i new to options, i am just buying put options or call options but never sold call
sold 3700 call may at 145?
means you short sell 3700 call or buy put 3700.
can you put some light on it.
if it is writing 3700 call at 145 plz sir can you tell how to write, i am desperate to learn writing.
thanks in advance
kabir
Dear Kabir,
I think u r desperate to make quick money. Options is a sure shot way of losing money if u are not sure of what you are doing. Remember, market has a mind of its own. No one can predict the market direction.
Its like if u toss a coin 5 times and heads came in all five, u think that 6th time will be tails going by law of average. but the sixth time also, the probability remains 50%. if u bet heavily on tails, then there is a 50% chance of losing.
Options is a probability game. When u buy an option, u are betting on the probability of the market moving towards a particular direction. Smart players use this to hedge their positions, something like buying a insurance after u buy ur car. You pay an amount (insurance premium) to the insurance company and in the event your car gets damaged or stolen they pay you the sum assured or the amount required to get your car restored in case of damage.
Options writing puts u in the shoes of the insurance company who is selling you the insurance. Now, Its a probability game. In case the car you insured doesnt get stolen (or damaged ) in the stipulated period of time then you get to keep the premium.
Again i want to point out here that, Options (insurance of the car) is not an asset. Its a contract between 2 persons that expires at the end of the month.
Like wise, when i sell a 3700 may call for 145, i am making a contract in the market that in case nifty rallies above 3700 i will bear the cost of every point nifty raises above 3700. Say the nifty spot closes at 3900 when the may series ends on 28th, i have to pay 200 points. Since i already received 145 as premium, my loss will be 200-145 = 55 points. Now in case the market closes below 3700, then i get to keep the premium.
When you write a option, you are credited the premium amount, but an amount equivalent to the strike price x lot size x no. of lots x margin (required by broker usually 15% max) will be blocked. So if i sell 3700 call may, i receive 145 x 50 =Rs. 7,250 in my account but 3700 x 50 x 1 x 15% = Rs. 27,750 /- will be blocked from my account as margin against the option i just sold. The said margin will require m2m losses if any. which means that,if market gapped up on monday to 3900 levels, a sum of 200 x 50 x 1 = 10,000 /- will be added to the margin as m2m losses.
In case u have any more queries, u can post it here and i'll try to solve it to the best of my abilities. There are plenty of threads on options here and you can read them and get a clearer picture.
........ Thanks for cautioning
