How to settle Options?

[new2sm]

boss this icicidirect site is all screwed up. it take soooooo much time. sometime ago was not showing in Order book but now saw my request in Order Book cancelling Square off order right away.... so am still holding PG

 

[new2sm]

hi ranj one more doubt.

if I sell PG @19. what amount will be credited in my a/c?

(19-9.5)*3850 = 36575(profit only) or

19*3850 = 73150

ofcourse my profit is only 36575 but I should get my principal amount back.

if I get only 36575 I have actually made no profit what I have effectively got back is the principal sum invested by way of premium.

what Gross sum comes into my a/c?

 

[biyasc]

hi ranj one more doubt.

if I sell PG @19. what amount will be credited in my a/c?

(19-9.5)*3850 = 36575(profit only) or

19*3850 = 73150

ofcourse my profit is only 36575 but I should get my principal amount back.

if I get only 36575 I have actually made no profit what I have effectively got back is the principal sum invested by way of premium.

what Gross sum comes into my a/c?

you will get back 73150 (19*3850).

just try to clear all of your confusions. then start trading. it should be good for you.

one more thing, before calculating the profits always calculate the actual risk involved in that particular trade.

 

[new2sm]

hmm any good tool to find out buying which Option will be with minimal risk and good returns? the BS model calculators are good but they dont tell us picking up which Option will be best. Plus you have to input all sorts of complex numbers just to derive true value of an option. Suggestions?

 

[ranj_2k]

ICICIdirect must have debited you at Rs.9.5 at the time of buy and at the time of sell they will credit you with Rs.19.5 and difference (19-9.5)*3850 = 36575 will be your profit.

 

[new2sm]

when will PG decay start. will the premium start falling then? icicidirect shows Last Traded Price and Bid and Ask Price. I have noticed that the Bid/Ask price is greater than LTP. can I sell at Bid price? but if you can explain about decay, how to calculate the start and amount of decay then it will be helpful.

 

[ranj_2k]

Options are not like stocks where you buy them and hold them. Decay will continually erode your position and a change in trend can evaporate your profits quickly. It is important to set a specific target price for the option when you initiate the position. When you reach your target, you sell and take our profits. Beware that greed can be a strong motivator and make you want to increase your price target as it is rising. However, doing that can sometimes turn a winning position into a losing position.
There is no clear cut principle to know when time decay will start. But when expiry date started approaching near decay will start fast and will try to match the strike price and spot price. Premium will start evporating.

 

[new2sm]

ranj one more question reg. costing Options, when can I say am making profit.
scenario 1: Stock price about Strike + premium price BUT LTP(Premium) still below my buy price.
scenario 2: Stock price still below Strike + premium price BUT LTP(Premium) has crossed my buy price.
scenario 3: Stock price above Strike price BUT below Strike + Premium price, LTP(Premium) has crossed my buy price.
scenario 4: Stock price above Strike price BUT below Strike + Premium price, LTP(Premium) has NOT crossed my buy price.

regards.

 

[ranj_2k]

scenario 1: Stock price about Strike + premium price BUT LTP(Premium) still below my buy price. LOSS WHEN PREMIUM BUY PRICE LOWERING
scenario 2: Stock price still below Strike + premium price BUT LTP(Premium) has crossed my buy price. PROFIT WHEN PREMIUM CROSSES BUY PRICE
scenario 3: Stock price above Strike price BUT below Strike + Premium price, LTP(Premium) has crossed my buy price. PROFIT WHEN PREMIUM CROSSES BUY PRICE
scenario 4: Stock price above Strike price BUT below Strike + Premium price, LTP(Premium) has NOT crossed my buy price. LOSS WHEN BUY PRICE IS LOWER.
WHY YOU ARE LINKING YOUR PREMIUM BUY AND SELL PRICE WITH STRIKE OR STOCK PRICE. IT IS INDEPENDENT FOR CALCULATING THE PROFIT OR LOSS. WHENEVER YOU WILL SELL THE OPTION, IT SHOULD BE ABOVE BUY PRICE INCLUDING BROKERAGE AND TAXES. THATS ALL.

 

[new2sm]

hmmm thanks for the clarification just as I had thought.