Can someone please explain me sure profit earning by call and put sell strategy?

Can someone please explain sure profit of by Call sell strategy? I saw a youtube video that claims sure premium profit.

Scenario:
Lot size: 500
If the current price of a stock is 180 and you know that it will never reach 150, Sell put at 150 Rs and you can earn a premium of Rs 5X500 (lot size) = 2500 Rs

Is this correct logic? Can someone please explain?

Scenario 2:
Lot size: 500
If the current price of a stock is 180 and you know that it will never reach 250, Sell call at 150 Rs and you can earn a premium of Rs 5X500 (lot size) = 2500 Rs

Is this also correct? Will I get 2500 Rs?

It is correct. If you sell options you get Premium*Lot Size, at expiry if your options expire OTM they expire worthless and you get to keep entire premium (- Brokerage and other charges)

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Thanks this helps. So do I need to exit on the last day or should I wait for auto square off to get the entire premium?

You don’t need to square off if its out of the money, it will expire worthless if price doesn’t reach your strikes and you will keep that premium as your profit. These kind of strategies have higher probability of success but lower returns on capital deployed.

Also consider if the prices actually drops to the strike where you sold PUT, anything below the strike is your loss, even though probability of that happening is low.

Read about strategies like Iron Condor which limits that unlimited risk with slightly lesser returns.

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No need to square-off if your Option are OTM.

Thanks. What is the best time to invest in this? At the start or middle or at the end of the month? I guess best time for such strategy is at the start of the month?

Usually at the start of month/week you will get maximum premium, also in times when VIX is high you will get more premium. If you are doing only sell PUT or sell CALL, I will consider doing it when market is down for PUT and when up for CALL. Beauty of strategies like Iron Condor is when you enter the trade you will know your maximum profit/loss.

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Thanks. Can you please also explain the final premium amount calculation in this case? Premium will be higher at the start say 20 and lower in the end say 2, so which premium value will I get?

Its extremely simple calculation, just think of premium as if it was price of any stock you buy or sell to calculate a PL. So you sell an option at price 20 and you close your position at price 2 on expiry day, so your profit is [Sell Price - Buy Price], which is (20-2) = 18. Ideally if it expire worthless so it will be priced at 0 on expiry so your profit is (20-0) - 20 and that’s the maximum you can make on this trade

But keep in mind if trade goes against you and your position ends up in the money say its priced at 50 on expiry day then your are in loss (20-50) = -30, that’s why you need to hedge your position.

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No sure shot strategies. No holy grail systems in stock market.

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Can you please specify which one will give more premium amount if expired? Call sell or Put sell?

@Jack_R this is the answer you are looking for.

I am more awestruck that this thread went longer. It’s like someone ask how to find the end of the rainbow. And people started giving the exact coordinates. Sorry, but seems like the blind leading the blind.

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I will give you two scenarios. But do not try them without understanding what they are.

  1. Box spreads. They offer risk- free pay offf.
    https://en.wikipedia.org/wiki/Box_spread_(options)

  2. Future premium arbitrage
    You sell a future contract of a stock and buy the stock in cash market( equal to lot size of future contract). Futures mostly sell at a premium to spot price. If you square off both at the time of future contract expiry. You may pocket the premium received on future contract.

But important thing is:
These are good for theory but not good for actual trading. Because the transaction cost and slippages may actually cause some loss or profit will be very very low even less than FD interest.

OK now don’t forget to visit my blog site for more ideas. :rofl:
Click HERE

@Celina

Everyone has the right to ask any question right?. If you can’t help, at least don’t discourage it.

In spite of going through the concept couple of times, I had a lot of confusion about the same and hence the question. I believe the motive of this site is to clear doubts.

No one is forcing anyone to reply. It is surprising to see such discouraging comments from the support member.

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To carry the position at last day you need to have 100% margin on last 2 days of expiry.
Wednesday and Thursday.

Even though your option is far OTM still you should have 100% margin.

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Thanks for this information.

You can consider squaring off on expiry day. While you pay a small sum of money for brokerage it will help with taxation. Your reports will show a clear Buy and Sell for each script. Probably not a huge deal, but it can be useful.

No one cannot help you in creating a sure profit strategy.

All these hypothesis sounds so smart, but I doubt the people giving these responses have really worked on the hypothesis.

If truth rubs your expectations, and you call it discouraging, I don’t know why man has lot of ego. They cannot accommodate any critic. Maybe that’s why they fail a lot in trading and yet won’t admit.

But some man are humble enough to be a little bit womanly. And they succeed well.

Here, most can’t take any criticism. They act like alpha male. Act not be. Lol

You said “act like alpha male”?? “man are humble enough to be a little bit womanly”?? seriously?? are you sexist??
Whats wrong with you?? You think I replied because a woman commented on my post?? What has alpha male to do with a simple response??? As you have a habit of giving your unnecessary opinion to others, I also have one opinion for you. Go and meet a good “psychiatrist”.

You call your stupid comment as criticism? No one had asked you for your opinion on my question. Learn to mind your own business and keep your attitude and nose out.

People like you have the habit of unnecessarily poking others, when someone responds, you call it as a “ego” problem.

If you don’t like the question, ignore it and move on. You don’t need to follow and read others comments and show your bad attitude and immaturity by telling what you feel.

Who told you to check the replies if the question was not worth it? This itself shows you are interested in knowing what people are replying.

People are here to learn from each other. No one wants unnecessary poking and comments.
People will visit the question, if they find it interesting and if they want to help, they will respond. You don’t have any right to poke, learn to stay away and mind your own business if you can’t help.

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Thanks