I had a question about two scenarios in Options trading: There is probably other threads about this but I have executed a trade and I am a bit worried - Please help me out
Below are details of my question:
A} Scenario A -> First Buy, then sell
B} Scenario B -> First Sell, the buy - Short Selling
SCENARIO B QUESTION - the short selling scenario:
My question upfront is - what is the risk (In rupee terms) I hold when I short sell a Put option - sell a put option that I actually do not own?
For Example -
1} If I short sell 1 lot (1000) PUTs of Tata Motors - for 1 rupee at a strike price of say 300 without actually having bought the put option before hand. Also I have not bought the 1000 actual shares of Tata motors either.
On exp. Date - Will I have to deliver 1000 shares of Tata Motors to the guy who bought my PUT option ?
2} Is "WRITING AN OPTION" same as "SHORT SELLING AN OPTION (SCENARIO B)" ? If it is not - I want to know how to avoid the risk of "WRITING AN OPTION" - I mean I don't want to unknowingly "WRITE" an option - while putting an option trading order in my OnlineTrading Portal
SCENARIO A QUESTION
As I mentioned at the beginning, I have already made a trade - I have done the trade in SCENARIO A manner. I have purchased 1000 Puts (1 lot) of Tata Motors at 1.60 - Strike Price is 290. So total money spent is 1600 rupees.
Now at the exp. date - if I have not squared of my position by then ?
Is it just the 1600 rupees I spent? Or more than that ? I called up the customer care - and this guy spookd me saying if I buy a put option (SCENARIO A trade)- los can b unlimitd, gain only limited. Whereas if i buy a call option (again Scenario A type of trade) los is limitd whereas profit can be unlimitd. Thats what had me worried.
Please let me know about this.
Thank you
Hgarus
Below are details of my question:
A} Scenario A -> First Buy, then sell
B} Scenario B -> First Sell, the buy - Short Selling
SCENARIO B QUESTION - the short selling scenario:
My question upfront is - what is the risk (In rupee terms) I hold when I short sell a Put option - sell a put option that I actually do not own?
For Example -
1} If I short sell 1 lot (1000) PUTs of Tata Motors - for 1 rupee at a strike price of say 300 without actually having bought the put option before hand. Also I have not bought the 1000 actual shares of Tata motors either.
On exp. Date - Will I have to deliver 1000 shares of Tata Motors to the guy who bought my PUT option ?
2} Is "WRITING AN OPTION" same as "SHORT SELLING AN OPTION (SCENARIO B)" ? If it is not - I want to know how to avoid the risk of "WRITING AN OPTION" - I mean I don't want to unknowingly "WRITE" an option - while putting an option trading order in my OnlineTrading Portal
SCENARIO A QUESTION
As I mentioned at the beginning, I have already made a trade - I have done the trade in SCENARIO A manner. I have purchased 1000 Puts (1 lot) of Tata Motors at 1.60 - Strike Price is 290. So total money spent is 1600 rupees.
Now at the exp. date - if I have not squared of my position by then ?
Is it just the 1600 rupees I spent? Or more than that ? I called up the customer care - and this guy spookd me saying if I buy a put option (SCENARIO A trade)- los can b unlimitd, gain only limited. Whereas if i buy a call option (again Scenario A type of trade) los is limitd whereas profit can be unlimitd. Thats what had me worried.
Please let me know about this.
Thank you
Hgarus