Nifty options call put

By: Mr. Third Date: 13.07.2017

There are two types of Options that you can trade in — Call Options and Put Options. You buy Call Options when you think a share is going to go up in value and you buy Put options when you think a share is going to go down in value. This means that the value of your Calls go up as the stock rises, while the value of your Puts go up when your share falls. Buying a Call Option is the same as buying a share in the sense that you profit from both the trades when the share price rises then why buy a Call Option at all?

Options can leverage your positions which means that you can gain or lose a lot more with the same amount of money using Options than you can by taking cash positions. This is akin to trading on the margin, and has the same effect. But theoretically, hedging is also one reason to own Options.

A Call is a right, not an obligation to buy an underlying asset at a predetermined date at a predetermined price by paying a certain amount upfront. I took this screenshot from the Options chain section of the NSE website , and this shows the Call Option details for NIFTY which expires on 25th October Every Option has an expiry date and the Option becomes worthless on that expiry date.

The expiry date is the predetermined date in the definition. This is a Call option to buy components of the Nifty, so the Nifty is the underlying asset from the definition.

The Strike Price which is the right most column in this image shows at what price you will be buying Nifty. A Nifty Call Option is made of 50 units, so you pay 50 times whatever is listed in the LTP column. This Call is a right, not an obligation to buy Nifty at a predetermined date of October 25th at a predetermined price of Rs.

So if you bought this contract today, you will have to pay Rs. If Nifty is at say 6, on that date, then your Call option will be worth a lot more than Rs.

If the Nifty closes below 5,, the Option will expire worthless because why would you buy Nifty at 5, when you can buy it for lower in the market. This means that when you buy a Call Option your loss is defined to what you paid for it. This is because the person who writes the option has an obligation to sell you the underlying asset at the price decided in the contract. A Put is a right, not an obligation to sell an underlying asset at a predetermined date at a predetermined price by paying a certain price upfront.

This screenshot is also from the Options chain section of the NSE website , and this shows the Put Option details for NIFTY which expires on 25th October This Put is a right, not an obligation to sell Nifty at a predetermined date of October 25th at a predetermined price of Rs. If Nifty is at say 4, on that date, then your Put option will be worth a lot more than Rs. So, in the case of a Put option, you benefit from the contract when the price of the underlying goes down because you have the right to sell it at a much higher price.

And like Calls, Puts also limit your maximum loss to what you paid when you bought the contract. For someone who is coming across them for the first time, they can seem a bit intimidating but once you get the hang of it they are fairly easy to understand and build positions with. Hi Manshu… Thanks for this nice post explained in a very simple language!

Though my 2nd point is not greatly important and might confuse some people but still I think it is better to mention it. That makes a huge difference between the LTP and the Ask Price. Thanks for pointing out those two things Shiv. Perhaps the 4th post on this series should be one that explains all the columns on this image and their relevance. Yes, you are right, probably that is the best thing to do to make people understand this point.

Hi Manshu, Thanks for the initiative of writing on Options, which is a complex topic.

nifty options call put

Though it can be understood by seasoned investors or investment professionals its difficult to explain it in simple terms. I just wanted to share few views which you may or may not agree with. Though a retail investor can pay premium and buy an option, its only suitable if the investor is very active enough to sell on an uptick in option price intraday or within few days.

This theoretically sounds good like hedging but practically there are few conditions like margins, portfolio size, etc for it to work. Research has shown that majority of options approx.

The unlimited loss is to the maximum extent of strike price in case of Put Option and theoretically unlimited to the extent of price rise in case of Call Options. But in real world Option Writers are smart enough to control their losses, so the concept of unlimited loss is a myth. The use of Option Chain is wonderful. Probably in future you can also explore Option Payoff diagrams which give an intuitive understanding of options and option strategies. Lastly, I congratulate you for this initiative.

Correction in Point 1: Please ignore margins, portfolio size, etc…. Leveraging by buying call option or put option can be a good strategy provided you are an active trader and have the ability to swiftly monitor and close positions, which most retail investors practically cant do. If you wait for more time the option loses its value leading you to losses.

On a lighter note its like buying more and more lottery tickets thinking that losses are limited………so in the end the lottery dealer or the option writer is the one who gains!

NSE - National Stock Exchange of India Ltd.

Option buying is suited only for traders or for pure hedgers, not for small investors. Where does it indicate that?

Hi Manshu, You didnt make a statement that option writers have a higher chance of success. Sorry for the assumption. This means majority of buyers lose their premium. You can also check this article- http: If you start trading in options you will realize this basic fact that most people ignore.

Option buyers can have a higher chance of gaining or benefiting if they are doing it for hedging purpose, but buying an option with a sole motive to sell at higher price is risky. I know little bit about options and wish to trade in options. Because as far as I know my risk is limited to the premium paid and that I have already paid at the time of purchase. For example, suppose I buy one lot NIFTY CE SEP expiry on Is there any risk in the trade.

Options for some reason, I was away. This has given some insight. Let me try and see how I can make money thru options. Can we sell it before expiry. What kind of options are traded in India.

Are these american options or European type. What i have heard is american options can be sold anytime before expiry date , whenever its in the money, while in European you cannot.

You have to sell it on the day of expiry date. The answer to your queries are as under to the best of my knowledge. One is you have an holding and you are selling out of it and the other sell, you do not own anything and will buy later to cover it, that is short sell.

You can do anything, buy, sell, cover, square off before expiry like future or equity. And I think you know the inherent risk in option writing. Normally the options are cash settled. You can sell, buy, exit before expiry but you cannot exercise option before expiry, in European type.

Hi saumya , thanks for the ans. By seeeling I meant the One where I have an holding and are selling out or more precisely , excercising the option. As our options are European type. You always pocket the difference. If anyone knows differently, then please correct me.

The significance is when you actually want to hedge your risk and you entered the transaction with the intention of getting or paying the price that exists today at a future date.

I just want to know that when you are posting the 4th part of this series. Please do include a few option strategies that one usually use for trade. Though I have read about these strategies but a bit confused to choose the useful one. I had quite forgotten about this. Hi Manshu Thanks for replies. Please do write on the 4th part as and when time permits, but do not forget to complete the series.

I do not think if there is any such terms like carry forward is prevalent in options like in futures. Even in futures you closes your this month position and open a NEW position in next months future.

In options, your bought out of money OTM option expires worthless that is their value is zero on close of expiry.

You will have to buy or sell an option of the same or different strike rate if you want to want to enter a new trade. If you have a query on options, please post here, I will try to answer, to the best of my knowledge. But before posting your queries, please go through previous posts on this page.

Active Calls - F&O Market, All Futures & Options, Index Futures, Index Options, Stock Futures, Stock Options

To close out an open position in option, we need to square it off or exercise. For ex, i have bought a call option and now to square off means i will be selling the call options at same strike price with same expiry but at the current market price. As most of us now, seller of an option is subject to unlimited losses but limited gain.

So, square off is also going to be put us in same situation of unlimited losses? I know that it is not the case, i. To close out an open position in option, you need to square it off. Here meaning of squaring off is similar to futures. If you have bought an option then you will square it off by selling the same strike with same expiry at current market price. So no question of unlimited loss, as you do not have any position.

I noticed that towards expiry irrespective of the nifty futures position, the Put prices go down considerable to almost nothing. Is it advisable to sell Put rather than buy is and then buy it as the prices drop around expiry?

For example if nifty futures is at , and the market looks upward should I buy Nifty CE or is there more volatility in Nifty CE ?

HI, Mashu… Thank you for Detailed explaination. How can we know maximum LTP for that praticular strike price. If underlying price reaches How would be LTP implies…?

Why wait for a day.

NIFTY Options Tips - Options Call and Put Trading Tips - Wealth Wisher

Hi Anuj You too are not very clear on sale of equity. Let me cite your words: But be careful while trading options If you do not have knowledge of option trading, then do not trade option without gaining knowledge.

Trading options without knowledge can blow off your trading account. I will take your words of advice. I am doing just that, learning all and everything about Options before diving in.

I am a little skeptical about Futures but Options seem to be logical once you have full knowledge. What does this actually mean and how it works etc… that would be very much helpful to the reader and learners … thanks in advance — Anuj.

Not sure what you are trying to say here but you can barely draw an inference on Options themselves based on what my bandwidth or capacity to write on the subject is. Hi Manshu, Thanks for the article. I bought a Nifty options which expires on 28th May through my icicidirect trading account. And what would my profit be if I have bought 25 quantity of Nifty Call Option Rs and on the expiry date the nifty is at ?

At the date of expiry, the option will have a certain value, and that value will be used to calculate your profit if there is any. If the value is less than what you have paid then you will lose the money that you spend to the buy the options and nothing more. I would like to learn call put and nifty and make position so if you can show me any one statergy I will be very kind full for y. I buy one script option ce 3. Total amount you will get in case i. But better to square off before expiry time, do not wait for closing bell, otherwise you have to pay hefty STT.

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Hi I know little bit about options and wish to trade in options. Let me try and see how I can make money thru options Reply. Hi Ashish The answer to your queries are as under to the best of my knowledge. Hi Manshu I just want to know that when you are posting the 4th part of this series.

Hi Saumya, I had quite forgotten about this. Hi Anil I do not think if there is any such terms like carry forward is prevalent in options like in futures. Friends If you have a query on options, please post here, I will try to answer, to the best of my knowledge.

Very insightful article and comments! Thanks Umesh for the reply. I am a little skeptical about Futures but Options seem to be logical once you have full knowledge Must say the article from Manshu is very informative Reply.

What does this actually mean and how it works etc… that would be very much helpful to the reader and learners … thanks in advance — Anuj Reply. Let me give you an example on dynamism of options.

I would like to learn call put and nifty and make position so if you can show me any one statergy I will be very kind full for y Reply. Cancel reply Leave a Comment. Beginners Guide to Investing in the Stock Market.

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