On Feb 3rd 2015 @ 3:20 PM, I have bought each lot of Bank Nifty on 19400 CE & 19400 PE when the Market Price was @ 19379.
Option values were 19400 CE @ 585.75 and 19400 PE @ 470.50 respectively.
On the next day morning @ 9:50 AM, I was checked when the Market Price was @ 19250 and Option values were 19400 CE @ 480 and 19400 PE @ 484 respectively.
Market down from 19379 to 19250 - 129 points and thus Call value reduced from 585.75 to 480 - 105.75 points and Put value increased from 470.5 to 484 - 13.5 points.
I was very much confused that why Call value reduced more 105.75 points and Put value increased very less for 13.5 points.
I thought to do the hedging process for safer side but resulted in loss only. I believed 19250 was OTM option type then why the Put value was not increased as much of decrease in Call value.
Since I m learning the Options and analysing with One lot so that minimise the loss amount. How can I choose the OTM, ATM, ITM Option types on CE & PE for safer side trading. Where I did mistake.
At the start of the month, the premiums of the option strikes will not have proper values as they wud not hv got adjusted becos of Random Rollover from the previous month based on temporary supply/demand/expiry positions. If you observe the Spread(ASK-BID) in the premiums, u can easily note that behavior during the starting of the month. So, allow atleast 5 trading sessions to pass through for the premiums to adjust properly.
Coming on to ur specific scenario, BankNIFTY(BN) 19400PE was quoting @ 480 at the time u hv mentioned. Note that 19400PE has spread of 30 pts. Also, note it was @ 534 just 1 min prior to that. My guess is that when the BN went to 19250, the ask price wud hv been higher, but thr wud be no one to trade that price. So, if nobody trades at the right price, the option calculator wud take the LTP which wud be a low price at tht time. Along with that if the market reverses back at that time, then gone case, the computers wont miss the opportunity to eat the premiums of the option strikes.
So, the Gist is:
1)Atleast allow 5 trading sessions for the option premium values to get adjusted at the starting of the month.
2)If one wants to learn Bike riding(Option Trading), they shud start learning using HeroHonda(NIFTY) rather than jumping on Yamaha(BankNIFTY) :-))
Hi, Mr.Arunachalam Options are more other values like as time value volatility value , trend and intrinsic values, to be known from Back-schole method of option pricing.
The liquidity also major problem while trading.
So far as observed last decade of time Indian Options are not theoretical compared with other Bourses.
Our option prices are trading beside Future prices fluctuation combined with bid/ask quotes.
Finally the less in price but costly for buyer known as deep out of the money options are also trade at some price to be computed from deep in the money to deep out of the money option prices, with some correlational movement with underlying prices.
In common any prices of options trading fair correlation I caught as under formula that I create and observed and used for fair pricing discover in options.
Price at strike is
(Square root value for a product of the prices of equal difference strikes IN and Out of money strikes option prices)
and < (Average value of the prices of equal difference strikes IN and Out of money strikes option prices)
and changes in price as a simple formula based for easy study to fallow as below
compare with LTP prices
ie.,
Strike Price Plus Call Price Minus Put price of same strike price value is Equal to Future Price,
and bid/ask prices generally oscillates beyond the price changes.
My sincere advice is please have enough knowledge first before went for options trading often investing and trading.
Learn knowledge first than it became a weapon for your earnings.