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  #1  
Old 29th November 2007, 07:58 PM
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Default Basic Questions About Options



Dear Alchemist,

Can you please suggest exactly what is call/put and is it safe in comparison to delivery/ intra day trading.

Thanks
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  #2  
Old 29th November 2007, 09:58 PM
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CAll = Buy(Call it In)
PUT= Sell(Put it back)
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  #3  
Old 30th November 2007, 12:40 PM
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Dear,

Please tell me some details also, if you can.

Thanks in advance
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  #4  
Old 3rd December 2007, 12:48 AM
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Default A doubt in option trading

I am having a doubt in option trading,please clarify it.
my doubt is ,
if i bought a stock call option and does not close my position what will happen after the expiry date? should thy force me to buy or any thing else.

in detail
if i bought reliance call 3050 for rs 3.25,but the expiry date there is no buyer at the same time the spot is 2850.

same doubt in put also. pl clarify

thanks in adv
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  #5  
Old 3rd December 2007, 02:07 AM
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Quote:
Originally Posted by sarafsaket View Post
Dear,

Please tell me some details also, if you can.

Thanks in advance
Call option is a right to buy shares at a particular price (known as the strike price). To buy this "right", you have to pay a price, which is known as the "Option Premium"

Consider a stock at Rs 100.

You think the stock will go to Rs 110.

So you buy a call option with strike price Rs 105 for a premium of Rs 2.

This means now you have a right to purchase the stock at Rs 105.

If the stock is below Rs 105 at expiry, then your 105 call option is useless. Why would you buy a stock at Rs 105 when the same is available in the market at less than Rs 105.

Your break-even point will be Rs 107. If the stock is at Rs 106 on expiry, you will have Rs 1 profit from the call option, but as you paid Rs 2 premium, you will actually have a net loss of Rs 1.

Similarly, a Put Option is a right to sell shares at a particular price (strike price) and this right is bought by paying a premium.

Quote:
Originally Posted by jaypee View Post
I am having a doubt in option trading,please clarify it.
my doubt is ,
if i bought a stock call option and does not close my position what will happen after the expiry date? should thy force me to buy or any thing else.

in detail
if i bought reliance call 3050 for rs 3.25,but the expiry date there is no buyer at the same time the spot is 2850.

same doubt in put also. pl clarify

thanks in adv
Your 3050 call option will have 0 value if the stock is at 2850 on expiry.

As I mentioned earlier, why would anyone buy a stock at Rs 3050, when it is available at Rs 2850 in the market.

However, if you have a Rs 2650 call option and the stock is at Rs 2850 on expiry, the exchange will automatically settle the trade and credit Rs 200 to your account.
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  #6  
Old 11th January 2009, 03:55 PM
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Default Information need for option

Quote:
So you buy a call option with strike price Rs 105 for a premium of Rs 2.

This means now you have a right to purchase the stock at Rs 105.

If the stock is below Rs 105 at expiry, then your 105 call option is useless. Why would you buy a stock at Rs 105 when the same is available in the market at less than Rs 105.

Your break-even point will be Rs 107. If the stock is at Rs 106 on expiry, you will have Rs 1 profit from the call option, but as you paid Rs 2 premium, you will actually have a net loss of Rs 1.

Similarly, a Put Option is a right to sell shares at a particular price (strike price) and this right is bought by paying a premium.
My query is :First,in both case i.e Call and put ,the trader will have to pay only premium ?
secondly,if first is yes then when will be premium paid?on expiry day or at time of call or put ?
Regards
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  #7  
Old 12th January 2009, 12:52 AM
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Quote:
Originally Posted by mahen_r26 View Post
First,in both case i.e Call and put ,the trader will have to pay only premium ?
Yes. The only amount that we pay at the time of buying an option (be it a Call or Put) is the Premium.
Later (on or before the Expiry Day) if we choose to exercise our Call option; we pay the actual cost of stocks at this time.


Quote:
Originally Posted by mahen_r26 View Post
Secondly,if first is yes then when will be premium paid?on expiry day or at time of call or put ?
This amount is debited immediately at the time of buying the option.
No amount is due for the Expiry day. It's just a deadline for us, before which we can exercise OR trade the options that we bought.

Last edited by panks_07 : 12th January 2009 at 12:55 AM.
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  #8  
Old 12th January 2009, 09:24 AM
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Quote:
Originally Posted by panks_07 View Post
Yes. The only amount that we pay at the time of buying an option (be it a Call or Put) is the Premium.
Later (on or before the Expiry Day) if we choose to exercise our Call option; we pay the actual cost of stocks at this time.
In India, options are cash settled.

Thus, even if you exercise an option, you have to pay nothing.

If the option is out-of-money or at-the-money, you get nothing, It's value is zero.

If the option is in-the-money, you get the difference between the strike price and current price (of underlying stock).

e.g If you have 140 call that you exercise and current price is 160, you will get Rs 20 cash.
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  #9  
Old 12th January 2009, 08:02 PM
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Quote:
Originally Posted by Alchemist View Post
In India, options are cash settled.
Good information.
And is it also correct that all options are auto-settled after expiry? I mean if I forget to exercise my Call (or Put) option, I would still get the money in my account if my option was in-the-money at expiry?
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  #10  
Old 13th January 2009, 01:48 PM
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Quote:
Originally Posted by panks_07 View Post
Good information.
And is it also correct that all options are auto-settled after expiry? I mean if I forget to exercise my Call (or Put) option, I would still get the money in my account if my option was in-the-money at expiry?
Yes.

You will get your money on expiry - even if you don't exercise the option.

(Assuming the option is in-the-money).
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  #11  
Old 28th February 2009, 10:43 AM
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Default

Quote:
Originally Posted by Alchemist View Post
In India, options are cash settled.

Thus, even if you exercise an option, you have to pay nothing.

If the option is out-of-money or at-the-money, you get nothing, It's value is zero.

If the option is in-the-money, you get the difference between the strike price and current price (of underlying stock).

e.g If you have 140 call that you exercise and current price is 160, you will get Rs 20 cash.
So net gain is (160-140-call premium paid ) = 20 - call premium paid.

Isn't it ??
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  #12  
Old 28th February 2009, 11:39 AM
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Quote:
Originally Posted by stockBond View Post
So net gain is (160-140-call premium paid ) = 20 - call premium paid.

Isn't it ??
Yes. of course.

In case you exercise the option,

net gain =

(current price of underlying - option strike price) - (purchase price of option + brokerage + taxes etc).

Suppose in the above case, the 140 call was bought at Rs 6 and related charges were Rs 2.

The net gain would be (160-140) - (6+2) = 20-8 = 12.
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  #13  
Old 1st March 2009, 03:08 PM
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Default

Quote:
Originally Posted by Alchemist View Post
Yes. of course.

In case you exercise the option,

net gain =

(current price of underlying - option strike price) - (purchase price of option + brokerage + taxes etc).

Suppose in the above case, the 140 call was bought at Rs 6 and related charges were Rs 2.

The net gain would be (160-140) - (6+2) = 20-8 = 12.
Then won't it be more profitable to sell the option and sell stock separately. .
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  #14  
Old 1st March 2009, 05:45 PM
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Quote:
Originally Posted by stockBond View Post
Then won't it be more profitable to sell the option and sell stock separately. .
Sorry, didn't get you question.

Can you please explain with an example...? .
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