A, B, C OF OPTIONS TRADING

#Now the Most awaited query asked by Many;

What are options? What is CE/PE ?

And How these work? 

(Boss yeh hai kya?)

So here we are,  

With our urge to know The OPTIONS-- 
From 30/40/50% to 10,000% (Unlimited) profit !!

!!Greed the options Greed!!

Everyone is amazed,how this wonder of unlimited profits happens in Trading.

(#Must Read Example below)

Let's come n understand 

Starting from;

Options Meaning: 

Options (namely Calls and Puts) are derivative contracts- that provides us  the Right,but not the obligation to Buy or Sell the underlying Asset (Eg:Nifty Index Option) on or before a particular date.

As compared to other derivative Contracts, say: FUTURES,

OPTIONS are less risky​, as u know the MAXIMUM​ LOSS that could happen to u within this option trade is only upto the Option Premium so paid.

With Options Different set of Strategies/ Combinations are possible. For instance: Straddle, Strangle, Butterfly etc.

Easiest of them are Buy CE or Buy PE .

(CE: denotes Call Buyer Option while PE: denotes Put Buyer Option)

During CE position,  we expect that such underlying Asset (Eg:Nifty Index Contract here) will rise, while in PE we expect them to fall.

Moreover,These Options can be traded in Form of Index or Stock Options. 

Lets take an Example of Today's Trade itself to understand Options further,

12th July 2017: 10,100 NIFTY INDEX/ BUY CE:9Rs./ JULY EXPIRY:

Spot price of NIFTY: 9891; Strike Price=10100; Expiry Date: 27th July;

 Bought Option Premium(CE) Price: 9; Lot Size: 75...

The question that rises here is; Why 10,100 Strike price has been selected ;

Because , As of Now we are expecting the market to be further bullish and Nifty Spot Price to go beyond 10,000-10,100 till July Expiry!!

and hence bought call option of NIFTY of 10,100 Strike.

Now to get in profit, Our CE should rise on or before Expiry,and if so happen we will Square off ( exercise ) the contract

 i.e we will SELL Options,so bought, as the price of CE/PE is higher than my Buying Price.

Now Suppose,

Case:1:

 Nifty Spot Price cross 10,000 due to which our option call of Strike price 10,100  also start rising,

say our CE of 9 Rs. reaches to 27 Rs. on or before Expiry date, 

you'll relish a 200% return here.

But How ??

What to do next ?

How to book Such Profits?

We just need to  just sell the option at price prevailing in market i.e Rs.27, ( similar to the way we sell Shares( equity) of a Company) 

Now the Calculations will be performed like this:

Amount needed to Invest = Option premium price * lot size

= 9 * 75 = 675 Rs.

When you square off ur position,

Profit will be 

= (Sold Option Premium Price - Bought Option Premium Price) * Lot Size

= (27 - 9) * 75

= (18) * 75

= 1350 Rupees, i.e 200% Profit

Case:2:

Vice versa ,if NIFTY SPOT PRICE will fall below Expected levels say, if it go below 9800 then our option premium(CE) of 10,100 Strike will also go down,Max upto 0,in that situation too u will  only suffer loss maximum upto 675 Rs. i.e option premium (CE/PE) paid Earlier}

That's it !!

U too now can trade in Options!! 

#Notes:

Note: 1: Brokerage and taxes are extra and haven't been included in above example,they vary from broker to broker,Contact ur broker for Same.

Note: 2: You can square off the options on or before the expiry date at any point of time.

Note: 3: Lot size varies from Stock to Stock and index to index,Say for Nifty its 75,while for bank nifty its 40,and for stocks its different)

#Disclaimer: Options are highly Risky and involves analysis using many factors/tools, like:OI(Open Interest),Time,Volatility,Beta,Delta,Gama,Theta,Vega,RHO.

Hence,Book ur Profits as per ur Greed & Risk bearing Capacity!!

Hope this little effort would help you in learning Options !!

Will come up with new article soon

Till then;

#Stay_Raw

#Think_Hatke