Hi Guys
I've been educating myself on the merits of option trading over the last few days and have to say i'm finding this particularly enjoyable, far more interesting than just plain jane stock trading. I however have a few basic questions that i need help on -
1) So far i've been trading in NIFTY call and put options...but have only BOUGHT these options and then based on changes in premium prices, sold off to book profits. I have not done the opposite, which is to SELL options without having bought them first. By selling options first, do i effectively become the writer of that option?
2) Should i sell an option, and then wait for price changes, and then buy back the same quantity of that option - is this something that would still make me liable for any losses at the end of the option period? or do i effectively square off the sale of the option by buying back from the market?
3) Selling Covered Calls - I understand the basic concept of first owning the underlying stock and then selling (writing) a call option for a premium. But i would need your help in understanding this with an example as below -
Stock A is trading at Rs. 500 and I own a 100 units of it. I sell a call option of 600 (strike price) till the end of the month for a premium of Rs 50. Now here are the options -
A) If at end of the month (EOM) the stock price is 600 or less, lets say it stays at 500, the option is not exercised, and i basically end up gaining Rs 50 per unit as premium.
B) If the price crosses 600 to lets say 750. What exactly happens then?? both in terms of process and in terms of my liability????
Could someone please explain this to me??
I appreciate any thoughts on the above....
ks
I've been educating myself on the merits of option trading over the last few days and have to say i'm finding this particularly enjoyable, far more interesting than just plain jane stock trading. I however have a few basic questions that i need help on -
1) So far i've been trading in NIFTY call and put options...but have only BOUGHT these options and then based on changes in premium prices, sold off to book profits. I have not done the opposite, which is to SELL options without having bought them first. By selling options first, do i effectively become the writer of that option?
2) Should i sell an option, and then wait for price changes, and then buy back the same quantity of that option - is this something that would still make me liable for any losses at the end of the option period? or do i effectively square off the sale of the option by buying back from the market?
3) Selling Covered Calls - I understand the basic concept of first owning the underlying stock and then selling (writing) a call option for a premium. But i would need your help in understanding this with an example as below -
Stock A is trading at Rs. 500 and I own a 100 units of it. I sell a call option of 600 (strike price) till the end of the month for a premium of Rs 50. Now here are the options -
A) If at end of the month (EOM) the stock price is 600 or less, lets say it stays at 500, the option is not exercised, and i basically end up gaining Rs 50 per unit as premium.
B) If the price crosses 600 to lets say 750. What exactly happens then?? both in terms of process and in terms of my liability????
Could someone please explain this to me??
I appreciate any thoughts on the above....
ks