Stock Market Tutorial

 

  What is Nifty Future ? How to trade in Nifty Future ?
  What is Nifty Options ? What is call and put ? How to trade in Nifty Options ?
  What is Stock Future ? How to trade in Stock Future ?
What is Stock Options ? How to trade in Stock call and put options ?
  What is Cash intraday or Equity intraday ? How to do Equity intraday trading ?
   
What is Stock Options ? How to trade in Stock call and put options ?

As Exchange allow trading in stock and in future, same stock options trading also there. In Simple word we can say Call means up and Put means down. When stock goes up call option prices move up and when stock coming down call options prices coming down. Same in reverse case, when stock comes down, put option prices goes up and when stock going up, put option prices comes down. But stock options trading is not as simple as we have written here. Generally, options price is a probability for this thing that stock will reach near to that price before expiry. In starting of expiry option prices are higher and day by day option premium came down if stock is stable at same price. We will understand stock options trading with an example now.

Tata Motors is one of the best stock for intraday trading, positional trading and for delivery also. Tata Motors lot size 1000 for Stock Future trading. Tata Motors Lot size 1000 means we are going to buy 1000 share of this stock in future trading. As we know that it require some margin to buy Tata Motor Future in stock future trading but if we are going to buy Tata Motors options it will ask for full amount. For Tata Motors stock options trading, lot size will also be 1000. Now suppose its 24th December 2012 today and Tata Motors closed at around 307 in cash. Every month all the future and options contract expires on last thursday means on Expiry. So this month expiry date is 27th December 2012 i.e. last thursday of December month. Right now call and put prices are available at good prices cause only two trading session left for expiry and after that there will be no value of these options. Now we think that Tata Motor will go up from 307, then we will buy Tata Motor December 310 call options Let us suppose it is available at Rs. 2.00. So it will require ( Rs. 2 x Lot size 1000) = Rs. 2000.00 to buy Tata Motors call options of 310 strike price. Now if Tata Motor started to move up then we will see some movement in Tata Motor 310 call also. If Tata Motor move to 310 within 10 minutes then call option may become double also means your return will 100% within 10 minutes. If Tata motor move up slowly slowly then call option price will not move too fast. We can hold this call option till last thursday means till expiry day. If Tata Motor given closing at 309 on 27th December 2012, then call option will be zero, means you will loose all your investment that is Rs. 2000 will be zero. As expiry will come closure option prices come down like if trader will think that Tata Motors will not cross 310 by expiry, call option prices will come down to 1.80 rs then 1.50 then 1.20 then 80 paisa then 50 paisa then 20 paisa and at last you will see seller at 0.05 paisa. Suppose Tata Motor close at 315 at last and we did not sell call then we will get Rs. 10000.00 in your account. Why ? Cause we bought 310 call at Rs .2 and stock given closing at 315 means call price will be Rs. 5.00. So account will be credited by (Rs. 2 x Lot size 1000 = Rs. 10000.00) and our actual profit will be Rs. 8000.00.

Now we will take another example to understand call option. In this example we are assuming that it is the first day of expiry today or we are going to enter in next month expiry contract i.e. Jan 2013. We will pick same stock Tata Motor to learn more. Now suppose Tata Motor currently trading at 307 and Tata Motor Jan 320 call running at 8 rs. See when there are more than 30 days left for expiry, Tata Motor at 307, then its Jan 320 call option trading at around Rs. 8.00 and same month 310 call 2 rs. But in this case call movement ratio will be little bit slow, when stock will move 3 to 4 rs then call option will move around 1.5 to 2 rs. If Tata Motor move up to 350 till 15th January 2013 then Tata Motor Jan 320 call option will move to 35 to 40 rs. At 350, actual value for Tata Motor Jan 320 call should be Rs. 30 ( 350-320=30). So call option price should be Rs. 30, but since there are more days left for expiry and if trader expecting more upside in this stock then still you will see some premium of 5 to 8 points in this call options. So if entered at Rs. 8 and call move to Rs. 35 , just think about profit. Our profit will be [ (35-8) x 1000 =] Rs. 27000.00 , more than three times of our investment. So options trading make your investment double or triple or ten to 100 times also. It depends on stock movement. Suppose you bought Tata Motor 320 call at 8 and some good news come for this stock and Tata Motor move to 400 before expiry, then call price will be minimum Rs. 80. Means you are getting 10 times returns. In reverse case, suppose bad news came for Tata Motors and stock started to go down and came down to 280 level suppose, then call option price will also come down, may be possible it will come down to 2 rs or 1.5. So if call option price came down to Rs. 2 means currently our loss is Rs. 6000 and if till expiry stock not moved this call option will be zero. Means we can loose full amount, so stop loss is very important for stock option trading.

Let us understand put options. As we said that Tata Motor will go up call option prices will jump and same if stock will go down call option prices will go down but put option prices will go up. Suppose Tata Motor currently trading at 307 and Jan 300 put option available at Rs. 7, if Tata Motors started to fall this put option price will go up. If Tata Motor came down to 250, this 300 put option price will be 55 to 58 rs. Means our Rs. 7000 will become Rs. 55000.00. But if till expiry Tata Motor sustaining above Rs. 300 then we will see day be day put option price will come down.

Now I hope that Stock option trading concept is clear to you. If you want to share your view with us or having any kind of query and want to ask any question then you can post it here, as soon as possible, you will get the reply.You can directly write to us to email id "smileadvisory@yahoo.com"

 

 
Name
Email ID ( will not disclose to anyone )
Mobile Number
Your view / question
CAPTCHA Image

Comments -

your comment will be here .

       
       
       

 

 

 

Copyright © 2014 Smile Advisory All rights reserved