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  #1  
Old 7th December 2007, 05:17 PM
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Default Options on Expiry?



Dear Alchemist,

Already i asked a doubt in option trading and i got reply.
thanks for that , but i need some more clarifications,please.
I am asking with some specific examples,

Asssume reliance spot at the time of expiry Rs 3000/-
1)bought 2900 call say for rs 50
2)bought 3000 call say for rs 40
3)bought 3100 call say for rs 30
and didnt close my position.what will happen?ie what is the exchange procedure?same doubt in put option also.

And the nifty is say 6000 at the time of expiry
1)bought 5900 call say for rs 150
2)bought 6000 call say for rs 125
3)bought 6100 call say for rs 100
and didnt close my position.what will happen?ie what is the exchange procedure?same doubt in put option also.

The question may be too long but the answers from you will definitely helps a lot to beginners in option trading like me .

thanks in adv
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  #2  
Old 7th December 2007, 06:01 PM
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If you let all options expire, in each case the payout will be:

Asssume reliance spot at the time of expiry Rs 3000/-

1)bought 2900 call - exchange will credit Rs 100 to your account.
2)bought 3000 call - exchange will credit Rs 0 to your account.
3)bought 3100 call - exchange will credit Rs 0 to your account.

And the nifty is say 6000 at the time of expiry

1)bought 5900 call - exchange will credit Rs 100 to your account.
2)bought 6000 call - exchange will credit Rs 0 to your account.
3)bought 6100 call - exchange will credit Rs 0 to your account.

================================================

subtract your initial cost from the credit amount, and you will get your profit(loss).

Asssume reliance spot at the time of expiry Rs 3000/-

1)bought 2900 call: profit = 100-50 = 50.
2)bought 3000 call: profit = 0-40 = -40 (loss).
3)bought 3100 call: profit = 0-30 = -30 (loss).

And the nifty is say 6000 at the time of expiry

1)bought 5900 call: profit = 100-150 = -50 (loss).
2)bought 6000 call: profit = 0-125 = -125 (loss).
3)bought 6100 call: profit = 0-100 = -100 (loss).
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  #3  
Old 7th December 2007, 06:32 PM
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that means the maximum loss is our premium.
if i am wrong pl correct me sir.
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  #4  
Old 7th December 2007, 06:45 PM
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Quote:
Originally Posted by jaypee View Post
that means the maximum loss is our premium.
if i am wrong pl correct me sir.
100% correct.

That's what makes options attractive for small investors... the loss is limited to the option premium.

for a seller(writer) of a call option... the loss is unlimited.

for a seller(writer) of a put option....maximum possible loss is the strike price.
e.g. someone writes a Rs 3000 put for RIL and the stock goes to 0. The put-seller's loss will be Rs 3000.
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  #5  
Old 7th December 2007, 11:01 PM
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Dear Alchemist,

One more doubt in option
For example
reliance spot is 3000
nifty is expected to move up to 100 points within a week
and volatility of reliance is 50.


Question is if I buy call option which strike is safer
1)less than spot
2)equal to spot
3)greater than spot

And nifty is expected to shed 100 points within a week
If I buy put option which strike is safer

1)less than spot
2)equal to spot
3)greater than spot

thanks for your valueable reply

Last edited by jaypee : 10th December 2007 at 12:55 PM. Reason: spelling mistake
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  #6  
Old 8th December 2007, 03:08 PM
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Quote:
Originally Posted by jaypee View Post

and the valitility of reliance is 50.
didn't get this one....what's that?
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  #7  
Old 10th December 2007, 12:54 PM
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Default spelling mistake

sorry it is Volatility: Measure of how volatile the underlying stock is.
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  #8  
Old 10th December 2007, 02:04 PM
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there is no correct answer to this question.

options of different strike prices carry different risk-reward ratio.

the more the option is "in the money", the greater is the risk and greater is the possible profit.


consider a stock at Rs 150.

if you buy call option of Rs 150, you will may get it for Rs 11.

if you buy a call option of Rs 100, you may get it for Rs 54.

100 option is an "in-the-money" option and has an intrinsic value of Rs 50. Rs 4 is the time value that you are paying.

150 option is an "at-the-money" option and has zero intrinsic value. The Rs 11 that you are paying is just the time value.

================================

if the stock is at Rs 125 on expiry.

you will have a loss of Rs 11 on the 150 call and Rs 29 on the 100 call.

if the stock is at Rs 175 on expiry.

you will have a profit of 14 on the 150 call and Rs 21 on the 100 call.

thus 100 call has more risk and also chance of greater profit.

================================

(note: it is a "chance of greater profit" and not "greater chance of profit").

if you toss a coin, chance of heads is 50%.

suppose you are betting to double your money.

if you bet Rs 1, you have chance of making a profit of Rs 1.

if you bet Rs 50, you have a chance of making a profit of Rs 50.

Rs 50 case has a "chance of greater profit", but the chances of profit are same in both case...50%.
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  #9  
Old 29th December 2007, 09:27 PM
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thanks alchemist for all the info,

i had some very basic idea about options and picture got a bit clearer here.. now i understand clearly the expiry aspect of the options.. please let me know how to close positions before expiry.. do i then become the writer? how is profit loss calculated?

suppose i bought reliance call at 3000 for premium of 50 when spot was 2900 (on the money)..today a week after reliance has moved up to 3100..so i stand to gain 50 rupees.. how to close the position? what will be my profit? also some idea about the brokerage and margins blocked..

thanks again..
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  #10  
Old 30th December 2007, 06:35 PM
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Quote:
Originally Posted by rohan14185 View Post
thanks alchemist for all the info,

i had some very basic idea about options and picture got a bit clearer here.. now i understand clearly the expiry aspect of the options.. please let me know how to close positions before expiry.. do i then become the writer? how is profit loss calculated?

suppose i bought reliance call at 3000 for premium of 50 when spot was 2900 (on the money)..today a week after reliance has moved up to 3100..so i stand to gain 50 rupees.. how to close the position? what will be my profit? also some idea about the brokerage and margins blocked..

thanks again..
To close your position, you have to sell-off the option. As you are already holding the option, selling it would not need any margin.

A buyer of option never pays any margin - he just has to pay the option price.

When reliance was at Rs 2900, the 3000 call option was at Rs 50.

When reliance is at Rs 3100, the 3000 call option must be at least Rs 100....plus there must be some time value.

The more is the time left for expiry, more is the option price.

Suppose you sell the option for Rs 120, your account will be credited Rs 120. Your profit will be (Rs 120 - Rs 50) = Rs 70. (When you bought the option, you had paid Rs 50.)
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  #11  
Old 17th June 2008, 04:05 PM
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I bought RPL 200 CALL at 2.65, June expiry (for Rs.4440 (2.65*1675) ), few days back. Right now, it is hovering around 1.40. Spot being 185.

If I let the option expire and spot is 205 at the time of expiry. Whether I would be at gain or loss?

And what if spot is at 200 or less than that?
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  #12  
Old 17th June 2008, 04:49 PM
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On the expiry if spot is:
205: You will gain (5x1675)-(2.65x1675)= Rs.3936.25
200 or less: Loss of premium paid (2.65x1675)=4438.75

Note: we have not considered the commission and other taxes in our calculation.
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  #13  
Old 17th June 2008, 07:48 PM
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Quote:
Originally Posted by ashish_jain11 View Post
On the expiry if spot is:
205: You will gain (5x1675)-(2.65x1675)= Rs.3936.25
200 or less: Loss of premium paid (2.65x1675)=4438.75

Note: we have not considered the commission and other taxes in our calculation.
That's correct.

Profit @ 205 = Rs 2.35 per share.

Profit @ 202.65 = Rs 0. (Breakeven point).

You will get cash equal to the price difference between the closing price on expiry day and Rs 200 (the strike price).

If the price is below Rs 200, you will get nothing.
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