SquareEtrading.com
 Home  | Trading Intro | Products Traded | IPO | Futures | Options | Stock | Index | Commodity | Currency | History Data | Lot Size & Margin Amount | FAQ



 What is an option?

Option (calls and puts) is a derivative contract which gives the right but not the obligation to buy or sell the underlying on a particular date and agreed price.

When compared to futures, OPTION has less risk and you know the estimate of your LOSS.

Different combinations of options and puts are possible and to start with, we will explain about BUY CALL option and BUY PUT option. Options can be traded on stocks and indices present in NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Option contract specification may be different among underlying. Some may be European Style Option, and others may be European Style Option.




1. BUY CALL OPTION with InfoSys STOCK:

You are expecting the market to be bullish. You buy call option on INFOSYS. To get profit, either you have to sell the contract or you have to exercise the contract. In the following example, we have squared it.

Note: We are not applying brokerage or taxes or stop loss in this example.

Example:
Current price of Infosys: 2962.50; Strike Price=3000; Expiry Date: 26th April 2013; Bought Option Premium Price: 81.5; Lot Size: 125; Assumption that on 10th of April 2013, Infosys price is at 3100 and option premium price of 100. You just sell the option at option premium price of 100. If the Infosys stock prices have fallen and if option premium has become zero, then you lose your margin of 10,187.5 rupees.

Premium you pay to trade on this call option:
= Option premium price * lot size
= 81.5 *125
= 10,187.5 rupees

When you square, Gross Profit
= (Sold Option Price - Bought Option Premium Price) * Lot Size
= (100 - 81.5) * 125
= (19.5) * 125
= 2437.5 rupees


2. BUY CALL OPTION with NIFY INDEX:

You are expecting the market to be bullish. You buy call option on NIFTY. To get profit, either you have to sell the contract or you have to exercise the contract. In the following example, we have squared it.

Note: We are not applying brokerage or taxes or stop loss in this example.

Example:
Current price of NIFY: 5700; Strike Price=5800; Expiry Date: 29th March 2013; Bought Option Premium Price: 90; Lot Size: 50; Assumption that on 10th of March 2013, NIFTY price is at 6000 and option premium price of 100. You just sell the option at option premium price of 100. If the NIFY INDEX PRICE has fallen and if option premium has become zero, then you lose your margin of 4,500 rupees.

Premium you pay to trade on this call option:
= Option premium price * lot size
= 90 * 50 = 4,500 rupees

When you square, Gross Profit
= (Sold Option Price - Bought Option Premium Price) * Lot Size
= (100 - 90) * 50
= (10) * 50
= 500 rupees

Note: You can square off the options on or before the expiry date at any point of time.





Introduction to Options






Stock Options Commodity Tips
Stock/Option/
Commodity Tips
APPLY FOR FREE TRIAL
 
 

    Home     |     About us     |     Contact us     |     Demo Account     |     Training     |     Books     |     Trading Links     |     Privacy policy     |     Disclosure policy    


Quick Links