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Bullet Advisory Indian Stocks-how to Buy Nifty Call-put Option and Calculate Profit or Loss

admin — Sat, 28 Nov 2009 00:29:59 +0000

Bullet Advisory Indian Stocks-how to buy Nifty Call-Put Option and calculate profit or loss

Everyday we listen about Nifty Option price closing up or down,Call Option,Put Option, market bullish or bearish .We wonder how to trade in Nifty Option and earn profit with limited loss and unlimited profit. What are the points we have to keep in mind while trading Nifty Option, how to calculate the profit and loss.First of all we have to determine the direction of the market whether market will be up or down.We can take the position in Nifty Option in the expected direction bullish or bearish.If we are bullish then we can buy Nifty Call Option and if bearish then we can buy Nifty Put Option.What trade we can execute and what would be our position in terms of profit and loss are explained below with examples.

If current price of Nifty is 2900 and Nifty Call Option Strike Price 3000 and Put Option Strike Price 2800 in January is 100=00 INRs and last date of expiry is on nth January. What trades we can do in Call and Put Option of Nifty and what will be our profit and loss position is as stated below.

If bullish we can Buy Nifty Call Option

(1)Buy Nifty Call Option January Strike Price 3000@100 INRs. Lot Size 50

Premium Paid=100*50=5000 INRs.

Maximum Loss=5000=00 INRs.

Maximum Profit=Unlimited

Break-even Price=3100

We can sell Nifty Call Option which we have bought anytime till last day of expiry i.e., nth January and can book profit or loss. If we do not sell Nifty Call Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.

.Different Possibilities with our Nifty Call Option Buy position

(1) Nifty Call Option price 140 and sold before expiry then

140-100=40*50=2000.00 INRs. Profit

(2)Nifty Call Option price 60 and sold before expiry then

100-60=40*50=2000 INRs. Loss

(3)Nifty settlement price 3200 and we have not sold Nifty Call Option till expiry then

3200-3000=200*50=10,000-5000=5000=00 INRs. Profit

(4)Nifty settlement price equals to or below 3000 and we have not sold Nifty Call Option till expiry then

5000=00 INRs Loss

This is the maximum loss we can have even if Nifty falls to any level beyond 3000.

(5)Nifty settlement price 3100 and we have not sold Nifty Call Option till expiry then

3100-3000=100*50=5000-5000=0.0 INRs. No Profit No Loss

If bearish we can Buy Nifty Put Option

(1) Buy Nifty Put Option Strike Price 2800.@100 INRs. Lot Size=50

Premium Paid=100*50=5000.00 INRs.

Maximum Loss=5000.00 INRs.

Maximum Profit=Unlimited

Break-even Price=2700

We can sell Nifty Put Option bought anytime till last day of expiry i.e., nth January and can book profit or loss.If we do not sell Nifty Put Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.

Different Possibilities with our Nifty Put Option Buy position

(1) Nifty Put Option price 140 and sold before expiry then

140-100=40*50=2000.00 INRs. Profit

(2)Nifty Put Option price 60 and sold before expiry then

100-60=40*50=2000 INRs. Loss

(3)Nifty settlement price 2600 and we have not sold Nifty Put Option till expiry then

2800-2600=200*50=10,000-5000=5000=00 INRs. Profit

(4)Nifty settlement price equals to or above 2800 and we have not sold Nifty Put Option till expiry then

5000=00 INRs Loss

This is the maximum loss we can have even if Nifty rises to any level beyond 2800.

(5)Nifty settlement price 2700 and we have not sold Nifty Put Option till expiry then

2800-2700=100*50=5000-5000=0.0 INRs. No Profit No Loss.

What is the advantage of buying Option compared to Future.Maximum loss is fixed and predefined.We cannot lose more then the premium paid to buy the Option under any circumstances and it is known to us before we trade.We can square up the Option position anytime after buying just like Future.We have to pay only amount of premium and not the margin which is required for buying future.

Reduce Your Risk With Stock Options

admin — Fri, 27 Nov 2009 13:02:32 +0000

Options trading, and specifically writing options, is normally poorly understood, and more often than not, poorly communicated. This is why most people dismiss it as too complicated or too difficult. So many traders are put off trading in options purely because of lack of knowledge. But once educated in this area you will find you can actually work options to your favour to produce regular income and reduce your risk.Options are just one type of Derivative. They’re a financial instrument which has another asset as its underlying base and includes futures and warrants. They provide exposure to shares but they deliver greater leverage and enable you to trade bullish or bearish markets and make money regardless of the direction the market is trending.People trade options for the leveraged factor. For a minimal capital outlay you can generate great profit, but leverage is a double-edged sword. When you win, your profit can sometimes be ten times the amount the underlying share has moved, but when you lose your loss is magnified to the same extent. There are two types of options, call option and put option. An option is a contract written by a seller that conveys to the buyer the right, but not the obligation, to buy (in the case of a call option) or to sell (in the case of a put option) a specified quantity of shares at a specified price (strike price) at or before a certain date in the future. In return for granting the option, the seller collects a payment called the premium from the buyer. A call option will rise in value exponentially when the underlying share rises in value and a put option will rise exponentially when the underlying share decreases.You will hear plenty of horror stories about people’s experience trading options. Some of these stories may be based on truth, so it is important to know why people are sometimes repelled from trading options after being introduced to the market. Usually they have only employed a buying of options strategy, which is called directional trading and requires a high level of concentration and knowledge about where markets are heading because if your stock goes the other way to which you intended you will be at a loss, a leveraged loss at that also. More investors lose money when adopting this buying of options only strategy. It is believed to be up to 80 – 90% of people lose money when buying options for directional trading. This is because the buyer needs their option to move further in-the-money to make a profit, and if it doesn’t they will be looking at a loss. In-the-money means the share price has to go up for a call and down for a put. This is why it is imperative you explore the other side of options and see the advantage of being the seller. When you have sold another trader an option, you have put yourself in the enviable position of having sold a depreciating asset. The value of an option decreases exponentially the closer it gets to expiry, it will lose two thirds of its value in the last third of its timeframe. Once an option has been purchased, if it is out-of-the-money (share price is below option strike price with a call option and above with a put option) at expiry, it will be worthless. The seller will have the money in their bank account and the buyer of the option will be holding a worthless asset. The buyer’s view of the option moving further in-the-money has failed.There is one advantage though with buying options, but it is only when buying a put option to protect shares you already own. If you own 1000 shares for example you can buy put options to insure those 1000 shares at a strike price at or close to your purchase price. What that means is, if the share price is below your strike price at the time of expiry, you can automatically have those shares sold at your nominated strike price.When used correctly options can definitely give you regular income as well as protection for your capital thus reducing your risk. But when used incorrectly, can quickly demolish your trading account.

Three Winning Bear Market Option Trading Strategies Revealed

admin — Sat, 14 Nov 2009 12:10:52 +0000

Most people lose money in a bear market. Do you remember the tech bubble and recession in 2000-2002? This article will discuss three option trading strategies that can make you big profits in a bear market or recession.

Option Strategy No. 1 – Buying Put Options

It is fairly easy to purchase put options. This option trading strategy can even be used in an IRA account as long as you have been authorized by your broker. You desire to select a stock, which you feel has a good chance of going down in price. Your risk will be limited to the cost of the put option. For example, stock XYZ is currently trading at $50 per share and you buy a put option on XYZ with an expiration date of two month later with a strike price of $50. If the stock drops from $50 to $40, your put option would be worth $10 per share.

Option Trading Strategy No. 2 – Buying Bear Put Spread

Buying a put spread is a little more complicated than just buying a put option but gives you the benefit of reducing your cost but caps your profit. A put spread is characterized by the trading of two same month expiration put options, buying one at a given strike price and selling the other put option at a strike price lower than the purchased put option. You want to pick a stock that you believe will be falling in value. Your risk will be limited to the cost of the put spread. As an example, if we purchase the put option as listed above but also sold a put option with a strike price of $45. In this example, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And while you are making less per share, your savings comes in the fact that the cost of buying the put option outright would be much higher than the initial cost for the bear put spread.

Option Trading Strategy No. 3 – Married Put

Risk can be minimized by utilizing a married put, which is a hedging strategy. This strategy consists of purchasing a stock that you believe will appreciate in value and buying a put option at the same time to minimize any losses due to adverse market movement. You might have heard the saying that there is always a bull market going on somewhere. In order to benefit from this strategy find out what business sectors and securities go against the grain and appreciate in a bear market. Next you buy the stocks you chose and protect your investment by buying a put option to limit your losses if the stock goes south.

In conclusion, you can still make big profits in bear markets by looking for stocks that you think are going to fall in price and buying a put option or a bear put spread. Alternatively, you could buy a married put on a stock in a sector you believe is going to appreciate, thus minimizing your risk. In addition to buying options on stocks, you can also buy put options on exchange traded funds or index options. Exchange traded funds let you invest in global markets, commodities and even currencies. It is possible to receive a large profit in a bear market. However, it is vital to comprehend the details of the option strategies, choose the correct stock, exchange traded fund or index option, and make use of a proven tactic and begin.

Disclaimer: This article should not be used as financial advice; it is only for informational purposes. Be sure to contact your financial advisor prior to making any decisions on investing.