could you guys suggest me what is the diff between CE short and PE Buy.
Both ce seller and pe buyer expecting price to fall , but difference is time decay is good for ce seller as every day passes gaining from decay & bad for pe buyer as every day passes losing premium , huge span + exposure margin for ce seller and premium amount is enough for pe buyer , for seller price need not to go below sold strike price ,if stayed at strike price enough , but for pe buyer price should fall enough to gain after covering his premium spent also should be in short span of time , if you are new to options , take time to read Zerodha Varsity Options modules and also read about MTM , cash collateral margins ( if pledged ) and freak trades in options happening nowadays before starting options trade , till then try in equities .
example : nifty 17000 Sep CE sell vs nifty 17000 sep PE buy
17000 sep CE is trading @ 629 rs so if you sell this option you are saying that nifty should be trading less than 17000 but since you are an option writer that means you are collecting 629 rs ahead so you will be in loss only when nifty trades above 170000 + 629 rs you have already collected ,i.e 17629 .
whereas 17000 sep PE trading at 32 if you buy that you are already giving 32rs to the writer so you will be in profit only when nifty trades below 170000-32 , i.e 16968. you will be in loss till the time nifty is above 16968.
see the difference between the two there is protection of 629 rs for the option seller even after 170000 but his profit is limited to 32,000 rs , ie 50* 629& loss is unlimited , but PE buyer profit is unlimited whereas loss is limited to 32 rs i.e 50* 32 = 1612.
I am assuming you have started your options trading recently , please refrain from trading until unless you know the basics , till that time you do atleast 50 -100 paper trades and experience 50 - 100 trades through your seniors or friends , dont burn your hard earned money .
CE Short =
- Sell a Call option
- you will receive money as premium ,
- But requires a margin (ranges between 1.2 L to 3 L depending on Stock)
- It will expire worthless if out of money (OTM) and entire premium received is your profit
PE Buy =
- Buy a Put option
- you will have to pay premium
- No margin required
- Needs to be square off the position, if it turns In the money (ITM)
In both Case, you will be profitable if the Stock Price goes down.