How option trading works everywhere

OIH, or one of its many component stocks. Follow The Cheat Sheet on Twitter. The significance of this is not to be overlooked. Read the original article on The Cheat Sheet. The challenges for daytraders are twofold. Access Your Free eBook To Sizzling Weekly Options Trades! Now, I do believe there are opportunities to be strategic with weekly options. Now, there are several hundred that you can trade, ranging from ETFs to stocks. Gamma is the relationship of the change in Delta as a stock price changes.

When I first wrote this, there were only a handful of weekly options available at the time. Also, you need to factor in the transaction costs of cheap options. In fact, you might have to work for it. Not only that, it makes the decision to buy back your options a lot more difficult. Gamma, but options that are close to expiration will be much more sensitive to Gamma. Imagine being naked short near term options and the stock gets halted. This usually results in a large drawdown. As you know, on expiration day, options will either close in the money or expire worthless. In fact, there are specific situations where I rely on weekly options to express my market opinion. However, today you can download the updated version of it for FREE.

So forget selling options altogether. Also if you observe the loss of money is much lesser than the maximum loss of money of Rs. SL order after market opens. If you choose to hold till expiry then you will get the intrinsic value of the option. Either ways the Profit or loss of money you make is the difference between the debit and credit. Say I bought shares of a company at Rs 100 in CNC without putting any stop loss of money. How much the premium will change wrt the change in Nifty depends on the delta of the strike price.

July Contract for Nifty at Strike Price 8600 trading at Premium of Rs. Aug contract CE i had taken, did not meet the target, then can i carry forward this contract to september. CHANCED UPON YOUR SITE. Expiry of current month options is always on the last Thursday that month. Strike price is 1400 so 1400. But in case if i hold till expiry date and let it get expired, i will lose 9562. So if i close my position on same premium after 10 min then what will be my profit? What will be the other risks on this trade? What will happen if these contracts are not squared before expiry?

Ron, it actually depends on liquidity. Hence one tends to say that there is a scope for exponential gains. Can I first buy and then sell PE or CE from last Friday of current to last Thursday of next month at any time in the live market hours? So am in loss of money right now. Nifty is trading at 8492 Spot. You need to place limit orders for stock options.

Recently started reading options module. Thanks for sharing the basics of option trading. Thanks for your prompt reply. There is a huge gap in previous day close and present day open. After all, knowledge increases by sharing. Closing price is the weighted average price of the last 30 minutes, where as the LTP is just the price at which the last trade happened. During the series besides the breakeven point there are other important factors that will determine the profitability of the trade. How to select Strike price?

So what happens to the call option now considering the expiry is 15 days away? Dear Karthik first of all thanks for making these complex things so not difficult for us. In fact most of the options are designed for expiry. In this case, you are entitled to receive in cash Rs. Can i place PE option for an ATM strike. If it goes to 330, the 370 buyer will not exercise option of buying. This is really a good material for beginner. If Nifty goes up, the premium goes up and vice versa. Sir my query is not about the Differences between LTP and settlement price.

Please help me to understand this. Also how are new option strike price generated. If yes than what whoud be profit or loss of money pls clarify. The current premium is 12. Be it PE or CE, I have to buy of the strike price which is at the near by value of CMP. Assume option is expiring at 10100. Yes, premium amount payable is 12. But what about all the different prices in between?

But can I also short it for intraday trading just like we do for Nifty Futures and also hold the short position for a few days? Rs 200 I put SL trigger price as Rs 220. Thank you for educating free of cost. What happens when I set a stoploss of a call buying option higher than the buying price in Pi? If you have sold the option, and the premium falls, then you make a profit and not a loss of money. In equities, there are two options CNC or MIS. However the breakeven point matters only if you intend to hold till expiry.

By the way, did you know if you buy a call and sell a put, you are basically creating a synthetic long futures position. Please help me on the above points as I am excited to know and educate myself. Let me ask one more question to get more clarity. Hence its always advantageous if you square off a profitable long option before expiry. If a lot of bhel is rs35640. Zerodha Varsity and am following the chapters intensely. As you may know, they are one of the biggest manufacturers of two wheelers in India.

In CE at Spot price of 2026. And my every aspiration started from this varsity module. In case the spot reaches the strike and there is ample time to expiry then like your friend mentioned, your premium is likely to be much higher than 142. As you can see, at the breakeven point we neither make money nor lose money. Sorry in advance if doubt is too silly. For me it looks win win for me. The Option Strategies I found online are all for holding the position till expiry. Can you please explain the basis to select exercise price for options. TV or by completely avoiding it. In the context of my dilemma, clearly buying a call option on Bajaj Auto makes sense for reasons I will explain shortly. In this case what would be total brokerage that I need to pay?

And best part is that you are giving the knowledge for free at a time when hardly anything comes without a price. Sir i have searched for the data and found it. Stock was at 1406 and closed at 1402. Am i explained right Karthik? The commission paid is not included in calculation of Break Even point. So what do you observe? Assume I bought one ITM option Nifty CE 9200 at 1068. As we can see the stock is trading at Rs. When premium goes up. What about other strike prices such as 2055, 2060, 2065, 2070 etc? Sir supose nifty was at 7820. In scenario 2, the price is considered to be at 2030 which is below the strike of 2050.

You will lose the entire premium if the option expires below the strike. About option strategies, U mentioned one or two comments u will give one or two scenarios for better understanding of option trading and method. The call option becomes profitable as and when the spot price moves over and above the strike price. CE and PE are to be bought, never sold for huge risk of loss of money is involved. In the Option Chain on NSE, IV is Intrinsic Value. You said you made a profit of Rs 10 per lot. If I buy a call option today in Normal when do I get the delivery?

Also what are ways for a buyer to exit contract or what will buyer has to do so that his option of not buying is executed if the price goes in opposite direction of call? NSE website and see the option chain for Cipla and then you will understand my quesion. Ok i will try to explain myself with example. You can sell it anytime you want. Means when premium goes up OR strike price goes up. But I have a doubt that when will I make profit? Do note, all other options will go worthless. So my profit according to premium is 2200.

So will I for 340 option. In the previous chapters we looked at the basic structure of a call option and understood the broad context under which it makes sense to buy a call option. Keep up the good work and educate us on more and more successful strategies. IV factoring the future irrespective of current spot price movement? When I try to buy a call option there are two options in Kite platform, Normal and MIS. This needs monitoring the market everyday.

It is so much clear now. Even the futures contract can be sold anytime you wish, no need to wait for expiry. So you would have sold at 64 and exchange will assume you are buying back at 0, hence your profit will be 64. Alternatively if you want to go ahead and sell it yourself, you can do that as well. Also, I have noticed there are large premiums starting from 2000. Correct me If m wrong. For various reasons the stock has been beaten down in the market, so much so that the stock is trading at its 52 week low price. There are many situations in the market that warrants the purchase of a call option. Thereby causing a profit of Rs. Thanks a lot and Thanks in advance.

Yes, that would be a loss of money. On any other day we can trade the premium but can we trade the premium on expiry day also? Thanks again, Guruji of Zerodha. So I consider it my responsibility to pass on the knowledge gained from u to others. Now If I buy a lot of 800 of CENTURYTEX MAR 500CE at the Rs. Despite the spot price being above the strike price, the trade is resulting in a loss of money! If the asset that you are trying to trade is liquid enough, then you can not difficult place market orders and not really worry about loss of money due to slippage. So what is Normal? ACC CMP is 1816 now?

If its profitable, then you will also have to pay STT. Having said that, I have a tendency to work with futures for intraday and options for overnight positions. Its very nice information about options. In case I bought CE, and my CE stop loss of money order is about to get triggered, I am placing a SL buy order for PE and vice versa. Say I am bullish on a stock which is currently trading at 100 rs. If it goes above 370 my profit is locked to 20 Rs. Can I sell or not? Sir Couple more queries. And before expiry the premium value goes to say 26 rupees whereas nifty rises to 8475 from 9410. Bajaj Auto 2050CE is at Rs. So, here is a tricky situation, the result what we obtained here is against the 2 nd generalization.

Please clarify my doubts. CE on last Friday of current month. Bajaj Auto is a quality fundamental stock, there is no denying this. April at strike price 8800 premium 450. Please correct if i am wrong. Yes, but that is not a fine.

Do note, if you are holding an ITM option, then it is better to square off the position just before the closing on expiry day. LTP was some price and closed price was different So what will be reason for this? That obviously would nullify everything. Dear Sir, On my above query, I have noted that expiry dates differs, still my question remains same, if we take todays Nifty 8600 CE of April is low 72. Strike price will not move like premium. You can hold on to it for as long as you want. In the given example, even if the price increases from 2026. If you buy 8200CE for 7, then you will make a profit only if the spot moves above 8207, below 8200 you will not get anything. The difference is what you end up making. No, it simply means that you bought an option by paying a certain premium and sold it later for a higher amount and pocketed the difference.

For buy today and sell on any day any time before expiry, do I need same capital to buy now? Yes, it is the same. Can you tell me when closing price generally displays in the system and On Expiry day? Can you clear another query of mine. On Equity, Buy on Less and Sell on High. You can book profit when the premium goes up just like u do when the price of a stock goes up. Remember, when you bought the spot was at 10200 and now it declined 100 points to 10100. Also, I suppose between 2026 and 2050, the loss of money is being minimized as we approach the breakeven point. Karthik avre, thanks for the confirmation.

Quants to get started. For a call option buyer a loss of money occurs when the spot price moves below the strike price. On option expiry either CE or PE, the cash settlement takes place between buyer and seller. Can i sell the option premium to get instant profit before expiry. Buy on Less premium and Sell on High premium. In Technical Analysis module Chapter 10 clause 10. Yes, the premium amount will be credited to your account. The higher the spot price goes from the strike price, the higher the profit. On Wed Premium is 250 on live chart of my that CE. Zerodha is the cheapest, technologically advance, and most customer friendly brokerage in the country. Is my understanding correct?

So what should I do? It is the same in theoretical and practical world. Can I sell it on the same day if the price moves up? So higher the number of days in a pattern the higher the conviction to trade. Thank you for enlightening every nuke doubts. No you cannot as the Aug contract expires in Aug. You are really doing remarkable job for beginners like me. ABC comp, strike price 100 rs, primum 5 rs, lot 1 that consist 100 nos. Sir, i have a doubt. Yes Karthik, I had read that article.

Does it mean when the share price reaches Rs 220 the system will automatically sell the shares? But I am not sure about all risks involved in this trade. This is also called rollover. Do help me get clarity. So for example if the call strike is 100, premium is 20, then the breakeven is 120. Very few do it. From 2050 to 2056. If you do not close your option position, then it is assumed that you are exercising the option.

If I buy a call option at say Rs. Yes, you can sell the Option contract you bought under Normal also on the same day. This is called the breakeven point. Both these combined leads to a decline in option premium. If I just leave it to expire what would happen and how much would I get? The stock in consideration is Bajaj Auto Limited. You need to be aware that both exercise and square off are two different things. Will be including 1 or 2 case studies towards the end of this module which I suppose will help you get a better picture.

Please advise if this is right? Profit settles between option buyer and seller counterparts for the same strike price. So question is can i hold on this option? So what happens to my 520 strike price call option. Well, that depends on your position. Everywhere you have indicated 3 scenarios while taking a Call Buying decision.

In other words, if the call option has to be profitable it not only has to move above the strike price but it has to move above the breakeven point. May be i am confusing in basics only. Upon expiry, the premium of all ITM options are settled in cash. Read it the second time, things started becoming a little clearer than earlier because I made sure that I understood each and every line of yours but still had some confusions. You rock and you help me make my decesions better. The order will get instantly if there is liquidity.

The line that claims the exponential increase in profit when the spot price moves higher is clearly misleading. The profit actually increase in a linear fashion rather than in exponential form. No, you cannot exercise the option before the expiry. No, you cannot consider any amount as LTP. Could you please help me with it. First, I want to thank you very much for doing a wonderful job. Is there any technique to guess it. Implied Volatility is the volatility expectation of the market participants. Yes, you can let it expire as such and it will get settled by the exchange.

Multiply 70 paise by the lot size to know your total profit. Tata Motors at strike price 480 and premium for this is Rs. ATM or ITM option and not so near the expiry. Profit settles between buyer and seller counterparts. God bless the team. Call option is trading at Rs. Yes, you earn the difference in premium. However, you can choose to square off the position whenever you want. As I have mentioned in the chapter, selecting the strike price requires some amount of background knowledge on options theory, towards the end of this module you will get a fair understanding on the same.

There is no delivery for Equity Options in India and there will be a cash settlement on the expiry date. It is a hefty STT that the exchange charges. Is there some intraday trading method for nifty options? The maximum loss of money the buyer of a call option experiences is, to the extent of the premium paid. Sorry if the question sounds silly as I have never traded in options. For example if as per Scenario 1 the price is considered to be at 2080 which is above the strike of 2050. Sir, pardon my questionnaire, its just that i want to know the concept thoroughly before jumping in. But I want something better. Dear sir, what is the actual thing we do when we say exercise an option?

Also we have to square it off at market price? Wonderful, truly amazing an initiative the whole Varsity is. Can you please elaborate this? But when when i try to open the option chain for cipla in NSE website, all the strike price below 550 till 450 have blank fields in it and show no data as if there is no trading going on all these strike prices. The uncertainty is mainly due the fact that my losses in the short term could be intense if the weakness in the stock persists. The premium changes as and when Nifty value changes. So he ended up paying a huge STT, which was way above the profits he made.

So when you short options your account would be credited and when you buy it back money would be debited. Market orders is allowed only for Nifty and Bank Nifty. So what I mean to say is that I dont plan to buy the stock on delivery basis as I fear the prices may go down further, thereby giving me a notional loss of money. Sir if I buy nifty call option for strike price of 9550 at a premium of suppose 16 ruppes. After a few days the share price has reached my target and I sell it. SL has to be set everyday and cannot be carried forward. Margin for call buying or should I pay only the premium. In the example given for Bajaj Auto above, how the value 35. Can I get 10 rs proft for my positions?

As strongly as the spot does, but with the element of time. Please tell me order allowing time levels at Zerodha and Exchange side? Thank you for humble advise on option strategies in module 2, have read the option modules. Keep reading it again and again and I assure you that things will start becoming clearer in your head. Got the price Differences on closing basis Vs LTP. Can I exercise at spot price before expropriation date. The value of the premium will depend on the intrinsic value of the option.

ITM option for STT reasons. But what will be profit if I exercise my call on expiry day incase nifty touches 9600 with considering lot option in calculation. Is there a mechanism wherein I can tell the system in advance to sell the shares whenever it reaches my target say Rs 110? If NSE is not displaying LTP, then it means there are no rates available. Please note this is just mu personal observation while trading. Exercise an option means that you hold the option which you have bought to expiry.

Yes, it does make sense. Elite Trader is a fancy word used to refer to someone who employs complex trading strategies. If I have 50000rs in my trading account. MUST VERY USEFUL FOR THOSE WHO ARE IN STOCK MARKET AND ARE BEGINNERS. Call option will also trade at Rs. Technically speaking 516 is ur breakeven point. From the above 2 generalizations it is fair for us to say that the buyer of the call option has a limited risk and a potential to make an unlimited profit. The losses keep getting minimized till a point where the trade neither results in a profit or a loss of money. In case of any other positive value for option then your profits will decrease accordingly.

In this chapter, we will formally structure our thoughts on the call option and get a firm understanding on both buying and selling of the call option. If it is possible to short the above contract, will it be better to buy a PE instead of shorting a CE? Or does he become an obligated writer of the option? However the idea at this stage is to slowly introduce the concept. Theory and actual closing. Please tell me your views on this please? Nifty will cross 8600 by expiry but over the next few days it will correct before crossing the 8600 then in my opinion you are better of buying calls and shorting futures. What are my choices and what can i do in these situation.

PM you will get to know closing prices. Maybe, I am missing a very basic point while raising this question. We are working on putting up a PDF soon. What about other strike prices such as 2045, 2040, 2035 etc? The maximum loss of money the buyer of a call option experiences is to the extent of the premium paid. Thank you so much Karthik! Reading ur chapters h has cleared many of my doubts. So no more STT trap.

HCLT, which made spot high of 747. What is the method behind holding those large premium options if on expiration the total value is less? Nothing really happens on Nov expiry, Pratik. However need to brush up on delta, theta and other later chapters. Hence the huge difference. Exchanges will take the onus of clearing the ITM options on your behalf. It will not be refunded if you hold it to expiry, but in this case you are trading the premium. However as per my estimate the probability of the loss of money is low, but nevertheless the probability still exists.

CE and later on sell that CE back for a higher premium before expiry, will it be like, I would be obliged to exercise my selling CE on the expiry date? Well the whole deal with options is that there is protection on the downside and we clearly know what is the loss of money in the worst case. As stated in the above chapter, on 26. Meaning if I have set the SL at 50 today but by end of day the SL has not been triggered then it automatically gets canceled at market closing. Thank you for your prompt response. Never sold one as I am confused how the payment settlement works. This is the cost that I have incurred in order to buy the 2050 Call Option.

Also, i will apprecaite if you can let me know few advantages and disadvantage of futures and options for day trading. However, when the spot price starts to move above the strike price, the loss of money starts to minimize. When you buy the loss of money is restricted to the extent of premium paid and gains can be unlimited. WE CAN EXIT ANY TIME BY TAKING PROFIT OR loss of money ON ANY OPTION AND NOT TO WORRY ABOUT WHAT IS UNDERLYING SPOT PRICE OR THE STRIKE PRICE PREMIUM ON EXPIRY DAY. Iam unable to understand, as per formula Break even pt. Most option strategies are around ATM and few strikes above are below these. Hope that answers ur query. Sir, am I right? It is all in your mind and depends on your market discipline. Well, the process of strike price selection is a vast topic on its own, we will eventually get there in this module, but for now let us just believe 2050 is the right strike price to trade.

How much difference of strike price to the spot price is safe? Before Expiry, their ITM options will expire Worthless? Just a quick query. The exchange has its own mechanism to settled all ITM options. Here is one that I just discovered while writing this chapter, thought the example would fit well in the context of our discussions. Till now, I have only bought a CE or PE. It talks about our rational behind starting Varsity. But unfortunately, he was not aware of the STT implication on ITM the options. In other words if you are supposed to get Rs. Can ITM option expires Worthless.

So please clarify on the below points and correct me if I am wrong. Technically the order should go have gone through, did you have enough funds? The December options will expire on 28th December. However this is not the case when you buy an options. COLD NEVER UNDERSTOOD FUTURE AND OPTIONS. More on these factors when we take up option geeks. What is the procedure of exercising my long call option on expiry day apart from letting it expire? If I square it on the expiry day how much would I get? OTM options expire worthlessly.

Second thing if when my call option ITM and if i sell it before expiry. JAN, Call which i bought become to 10. Along with the decline in spot price, there is also a loss of money in terms of time value. Irrespective of how the spot value changes, the fact that I have paid Rs. Hi, I was trying to calculate Total margin required using SPAN calculator. By the way, you may not want to hold ITM option upon expiry due to STT reasons. The loss of money is restricted to Rs. Am I correct on the above calculation or missing something here? Hopefully this will help. Buying shares is in the spot market, it has nothing to do with EQ markets. If options are linear then the gains and losses should be equal.

If my view is price will go up, I have to buy CE and if my view is price will go down I have buy PE. Anyways, will wait for your future modules. Now, you have indicated that under Scenario 1, Ajay stands to profit. Yes, your breakeven point is 8142. Closed priced on that day? Now, after few hours premium goes to 20 and spot price is 510 then in this situation am i in profit or in loss of money? Eventually I have discussed the Premium angle as well.

Although if you have bought an option and it is profitable, it makes sense to square it off yourself just before expiry to avoid high taxation. Is the trading on options which are deep in the money or deep out of the money halted until the prices comes back to those price levels. HDFC CE1180 ended the day at 12 rs odd. He guys it was my first time buying an call option of JPASSOCIATE. Put price 7 is ok. IV being impacted due to upward spot movement? Rs, how much total value I get? So i will get 500 nos as premium to be credited to my account. The change in premium is directly proportional to the change in Nifty. Sir, how to select a strike price?

Please feel free to ask as many questions as you want, you need to be knowledgeable before you place your first trade! This method seems to be doing fine till now. Thursday of every month for Equity Options. Btw, the premiums I mentioned are hypothetical. If you hold on to it till expiry, then it is implied that you are exercising it. The payoff before expiry would therefore depend on the greeks and the way they change. More or less, yes. Please tell me your views on the above queries.

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