Hi,,
Experienced Option Traders & Seniors:
I am posting this post for clarifying some doubts regarding options using a hypothetical example. My questions are more on safety of capital, exchange/broker's operations, margin requirements & settlement procedure etc:
TRADE EXAMPLE:
Short 1050 CALL at 25
and
Short 1100 PUT at 30
Both positions are open till expiry & will not be covered. Rough calculation shows 5 profit at the time of expiry.
My questions:
1) Is this trade a perfectly safe trade with no chance of loosing money, which ever way the market goes ?
2) What is the worst case scenario of loosing money in this trade ?
3) Should I invest really big in such a trade, if I am happy with the return % ?
4) Do I need to keep MTM funds for daily margin requirements ?
5) I will hold the positions till expiry & will not cover it. At what price will the trade will be settled by the exchange ? Is it at the spot price OR the settlement/expiry price is discovered thru any other mechanism ?
6) Do I need to compulsarily sqaure off the trades in order to book profit ? OR I will get profit automatically from exchange.
7) Margin: Do I need to pay margin for both the lots or only one ?
8) Will there be any charges / bkg or otherwise if options are not covered & are settled by exchange on expiry ?
Thanks,
Experienced Option Traders & Seniors:
I am posting this post for clarifying some doubts regarding options using a hypothetical example. My questions are more on safety of capital, exchange/broker's operations, margin requirements & settlement procedure etc:
TRADE EXAMPLE:
Short 1050 CALL at 25
and
Short 1100 PUT at 30
Both positions are open till expiry & will not be covered. Rough calculation shows 5 profit at the time of expiry.
My questions:
1) Is this trade a perfectly safe trade with no chance of loosing money, which ever way the market goes ?
2) What is the worst case scenario of loosing money in this trade ?
3) Should I invest really big in such a trade, if I am happy with the return % ?
4) Do I need to keep MTM funds for daily margin requirements ?
5) I will hold the positions till expiry & will not cover it. At what price will the trade will be settled by the exchange ? Is it at the spot price OR the settlement/expiry price is discovered thru any other mechanism ?
6) Do I need to compulsarily sqaure off the trades in order to book profit ? OR I will get profit automatically from exchange.
7) Margin: Do I need to pay margin for both the lots or only one ?
8) Will there be any charges / bkg or otherwise if options are not covered & are settled by exchange on expiry ?
Thanks,