Though I have gone through few articles on basics, i got an ICICI Direct basics on Options. Would like some clarification on certain things i cannot understand. Please note that the following is taken from ICICI Direct Option Tuturial
Example of a Call Option CE
Assuming that currently Nifty is at 1310. The following are Nifty options traded at following quotes.
Option contract Strike price Call premium
Jan Nifty 1345 Rs 5000
A trader is of the opinion that the index will go up to 1400 in Jan 2002 but does not want to take the risk of prices going down. Therefore, he buys 10 options of Jan contracts at 1345. He pays a premium for buying calls (the right to buy the contract) for 500*10= Rs 5,000/-.
In Jan 2002 the Nifty index goes up to 1365. He sells the options or exercises the option and takes the difference in spot index price which is (1365-1345) * 200 (market lot) = 4000 per contract. Total profit = 40,000/- (4,000*10).
He had paid Rs 5,000/- premium for buying the call option. So he earns by buying call option is Rs 35,000/- (40,000-5000).
If the index falls below 1345 the trader will not exercise his right and will opt to forego his premium of Rs 5,000. So, in the event the index falls further his loss is limited to the premium he paid upfront, but the profit potential is unlimited.
Call Options-Long & Short Positions
When you expect prices to rise, then you take a long position by buying calls. You are bullish.
When you expect prices to fall, then you take a short position by selling calls. You are bearish.
My queries/clarifications requred are:
1. In the above from where does the 500 arrive. I cannot make head nor tail of it. Could seniors clarify?
2. In the above from where does the 200 (market lot) arrive, market lot of Nifty is 50 i presume. Should it not be (1365-1345) * 50 (market lot). Could seniors clarify?
3. Also what does CE stand for and what does PE stand for
4. In ICICIDirect, I find the Options available as follows:
NIFTY
SYMBOL EXPIRY STRIKE PRICE LOT SIZE LAST TRADED PRICE
OPTIDX 30-Sep-201 5,700.00 50 9.65
In the above is 9.65 the premium and if I purchase 1 lot i.e. 50 is the calculated like 50 x 9.65 = 482.50 is the premium, Could seniors please clarify whether I am correct in assuming that 482.50 will be premium for 1 Lot of 50.
Regards,
Example of a Call Option CE
Assuming that currently Nifty is at 1310. The following are Nifty options traded at following quotes.
Option contract Strike price Call premium
Jan Nifty 1345 Rs 5000
A trader is of the opinion that the index will go up to 1400 in Jan 2002 but does not want to take the risk of prices going down. Therefore, he buys 10 options of Jan contracts at 1345. He pays a premium for buying calls (the right to buy the contract) for 500*10= Rs 5,000/-.
In Jan 2002 the Nifty index goes up to 1365. He sells the options or exercises the option and takes the difference in spot index price which is (1365-1345) * 200 (market lot) = 4000 per contract. Total profit = 40,000/- (4,000*10).
He had paid Rs 5,000/- premium for buying the call option. So he earns by buying call option is Rs 35,000/- (40,000-5000).
If the index falls below 1345 the trader will not exercise his right and will opt to forego his premium of Rs 5,000. So, in the event the index falls further his loss is limited to the premium he paid upfront, but the profit potential is unlimited.
Call Options-Long & Short Positions
When you expect prices to rise, then you take a long position by buying calls. You are bullish.
When you expect prices to fall, then you take a short position by selling calls. You are bearish.
My queries/clarifications requred are:
1. In the above from where does the 500 arrive. I cannot make head nor tail of it. Could seniors clarify?
2. In the above from where does the 200 (market lot) arrive, market lot of Nifty is 50 i presume. Should it not be (1365-1345) * 50 (market lot). Could seniors clarify?
3. Also what does CE stand for and what does PE stand for
4. In ICICIDirect, I find the Options available as follows:
NIFTY
SYMBOL EXPIRY STRIKE PRICE LOT SIZE LAST TRADED PRICE
OPTIDX 30-Sep-201 5,700.00 50 9.65
In the above is 9.65 the premium and if I purchase 1 lot i.e. 50 is the calculated like 50 x 9.65 = 482.50 is the premium, Could seniors please clarify whether I am correct in assuming that 482.50 will be premium for 1 Lot of 50.
Regards,