Quote:
Originally Posted by Prudent_Investor
Suppose you want to keep a stop loss and buy an out-of-the-money call option of 4800 for 50 Rs premium (say). So total outgo = 50X40=2000.(option premium)
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Quote:
Originally Posted by sudhashbahu
I have no clue of options. How would the case you indicated work? It sounds too good to be true that you get unlimited benefit on one side and losses get capped.
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Except that the 4800 Feb call with Nifty spot @4750 (in early Jan) and almost a month and a half to expiry, would not be trading @ Rs.50. Maybe closer to Rs.200 (Try a options calculator).
Or try for instance, the 5400 March call (Nifty spot @5380) as of today is Rs.180. The premium paid is closer to Rs. 9,000 and not Rs.2000. If it were so cute, everyone would be buying calls @ Rs.50 and that would drive the price up itself.
So, you would hedge a part of your losses but also give up an equivalent part of your gains. Like you know, if it sounds too good to be true, it probably is.
P.S. I have used Nifty Spot to illustrate my point here. Using Minnifty options would only make it worse since there seems to be absolutely no liquidity and asking price for Mar 5400 call is Rs. 225
