Write Put & Call question, please help!

[NewStarS]

Write Put & Call question, please help! [option sell]




Here i attached two screen shot taken from RKSV option calculator.

So far my understanding with option writing is we receive premiums for such trades & also we need to keep a margin.

Questions:
In those screenshot on RKSV calculator net premium showing in minus, does it means i will receive that premium for executing the orders?

If trades goes against my strike price, will that margin will be taken away by brokers? is it means the margin is the highest maximum loss?

Is it possible to add SL on such option trades?

Thank you
Regards

 

[NewStarS]

This forum is very helpful...No reply yet...

 

[Somatung]

Hi NewStarS

Sometimes you have to wait for answers, as non of the members is obliged to act on any of your post or questions. If you feel you can not wait, Google helps in many ways.

My English is not the best, but you still should understand what I now post:

1. At the moment you sell an option, at this moment you got a credit you are reliable to bring back at any time you are asked for until option expiration from the sold option.

2. If your credit get smaller, as the option you sold loses value by what ever reason, you start to have profits on this position and depending on the broker house your margin will be reduced. Most likely not with India brokers.

If your credit gets bigger, as the option you sold adds value by what ever reason, your broker calculated a certain margin amount to be on the safe side and reducing his risk. This margin is much higher compare to the credit you received by selling any option. If your credit explodes, as for example the sold options adds immense on value, then you will get a margin call from your broker to cap his risk he has with your sold option. So the margin you already had to place at first by your broker to sell a certain option does not mean that this is for sure the highest maximum loss you can face.

3. You can place a stop loss on such option trades. Still, a stop loss does not automatically mean that it will be filled, as when some thing special happens and no buyers are there on the level you placed your stop loss, then no filled of your order.

Maybe you are also interested in this:

Selling Options is no free lunch: http://www.dividendgrowthinvestor.com/2009/10/selling-options-is-no-free-lunch.html

Have a nice day and a nice coming weekend / Dan

 

[NewStarS]

Thank you Somatung for your time to reply me.
Perdon, actually I became little impatient because, I opened another thread previously, two weeks over no reply yet. That's why thought maybe this thread will also be unanswered.

I'm glad that you answered.

Just two more questions needed to ask. If possible please help..

For example, Say I want to do credit spread. One selling option one buying option, in that case will the margin will get netted ? I hope in that case i would not require much margin & will not be in much risk right?

Secondly If I get margin call somehow & I don't wanna continue any more, want to remove my brokerage account. Then will broker charge me any fine, I mean any legal step for negative account balance, if I don't wanna pay them?


Best Regards
Happy weekend you too

 

[Somatung]

Hi NewStarS

1. At the moment you open any kind of "Credit Spread", the broker will block the amount of money (margin) he is charging for this credit spread. You must ask your broker how much he is blocking, as not every broker will block the same amount of money. In modern or lets say advanced option trading platforms you will have margin calculators included, so you automatically see what your margin will be for this or that credit spread you implement in the market. In your case you may best use this link to have an idea in advance about what you will face on margins for any credit spreads you may want to implement in the market. At the moment you exit the credit spread and take it out of the market, at that moment your margin is no more blocked.

https://zerodha.com/margin-calculator/SPAN

2. First of all: You must avoid under any conditions any margin calls from any broker. This is a must. Your broker will close any position in your account to bring it back to balance if you are not able to full fill the margin call now. This means even position in losses will be closed from the broker house with out asking you if and maybe. They just do it to reduce there risk on you they have with your leveraged trades. If through this action you still have open credits with the broker house, according to the laws of the countries where your broker or sub broker is settled you may face any kind of penalty. I do not know the laws in your place, so clear this topic in dept with any broker or sub broker you want to work together with.

If you want to go deeper in this, put in the search tool from this link "Margin in trading" and you then can read on: http://www.sebi.com or do not be shy to contact them quickly and ask for any clarification you need in absolute dept on the topic.

Have a nice day / Dan

 

[NewStarS]

Hi Somatung,
Thank you for the clarification & the links.
Yes you are right asking about margin call issue is involves little shyness.
But will still do it.

Best Regards
Thanks