Hi All, I am newbie to Options trading.
Let me quote an example.
Date 6th Feb 2015
This is my first trading in Options so may be I am not using Options terminology very strongly.
I have purchase CAIRN Call Buy Options (Expiry Feb26) 1 lot at Strike Price of 265 and premium paid 3.85.
I wanted to understand the settlement process better since this is my first option trading.
1. Let's say by Feb 20, the premium of this contract increases to 5.85, and I am squaring off this trade. so will I make profit of 1000 * (difference of premium)=1000*2=2000? is this right understanding?
2. on feb 20, say the spot price of cairn becomes 270. In that case should I be watching on what is the premium at that moment? Say spot price is 270 and premium is 6.85. so there can be two way to look into
a) square off which means 1000 * (6.85-3.85) = 3000
b) sell the contract which means 1000 (spot - strike - premium paid)=1000 *(270-265-3.85)=1000*1.15=1150
if the price moves to 270 will I have an option to pick any of the alternative a or b mentioned above? I am using ICICdirect and I am only seeing the option to Sqaure off and not seeing sell option?. is it because the spot price has not crossed striker price? once it crosses 265 will I see two links in my demat account?
3) if by squaring off and selling the contract gives the same profit, which one should be preferred and what should be considered while taking the decision?
4) How is brokerage considered in terms of squaring off and selling? I am using ICICIdirect
5) What will happen if I let me contract expire without myself doing anything till the expiry date? will it sqaured off or will it be sold? I have read in few articles that it depends what customer has informed to brokers. what does ICICI does? Do I need to call and inform ICICI in advance?
I know it is much basics for you all gurus, I have read couple of articles and videos but was not able to find full answers to my questions. Thank you for responding.
Thank you,
Ashish
Let me quote an example.
Date 6th Feb 2015
This is my first trading in Options so may be I am not using Options terminology very strongly.
I have purchase CAIRN Call Buy Options (Expiry Feb26) 1 lot at Strike Price of 265 and premium paid 3.85.
I wanted to understand the settlement process better since this is my first option trading.
1. Let's say by Feb 20, the premium of this contract increases to 5.85, and I am squaring off this trade. so will I make profit of 1000 * (difference of premium)=1000*2=2000? is this right understanding?
2. on feb 20, say the spot price of cairn becomes 270. In that case should I be watching on what is the premium at that moment? Say spot price is 270 and premium is 6.85. so there can be two way to look into
a) square off which means 1000 * (6.85-3.85) = 3000
b) sell the contract which means 1000 (spot - strike - premium paid)=1000 *(270-265-3.85)=1000*1.15=1150
if the price moves to 270 will I have an option to pick any of the alternative a or b mentioned above? I am using ICICdirect and I am only seeing the option to Sqaure off and not seeing sell option?. is it because the spot price has not crossed striker price? once it crosses 265 will I see two links in my demat account?
3) if by squaring off and selling the contract gives the same profit, which one should be preferred and what should be considered while taking the decision?
4) How is brokerage considered in terms of squaring off and selling? I am using ICICIdirect
5) What will happen if I let me contract expire without myself doing anything till the expiry date? will it sqaured off or will it be sold? I have read in few articles that it depends what customer has informed to brokers. what does ICICI does? Do I need to call and inform ICICI in advance?
I know it is much basics for you all gurus, I have read couple of articles and videos but was not able to find full answers to my questions. Thank you for responding.
Thank you,
Ashish