Confuse in Option Trading

Please help me out. I bought nifty OTM CE before the 1 day of expiry and next day the nifty moved up but my CE came down. As I know Buying CE means Unlimited profit and Limited loss then why my loss had moved to infinite. OR there is another way to trade in option.

Dont trade in options before you have read everything.
At least watch youtube videos etc.

OTM will expire at 0 on expiry day, Right?

What strike you bought?
What was LTP then?
What was day open price?
What was day close price?

Ans these and I will help!

The moment you bought OTM strike before expiry day your trade was bound to be in loss, on expiry day for your OTM option to be in profit market has to make a big move. OTM options lose value quickly as period to expiry nears. Before you delve into option trading learn about option greeks and their impact on option price.

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You can only lose the amount that you paid as premium. You cannot have infinite loss as buyer of options.

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As a newbie you should learn the basic options jargons before jumping to trade

Buyer of a call/put options gets unlimited profit and limited loss extent to premium paid

Seller of a call/put options gets limited profit extent to premium receive and loss potentially unlimited (infinite).

@Mehdi_Abbas @Ragavendran_V

My guess of the scenario -

He bought the call options with whole lot of the money. May be he deployed 80% of his capital in buying those OTMs. So from his PoV - The loss is indeed unlimited!

:face_with_hand_over_mouth:

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Just check whether nifty spot has crossed your OTM strike price on expiry if not then it will become zero

Thank you all of you for reply and I figured it out that what @Mehdi_Abbas and @Ragavendran_V said about my loss,

As you know guys I am new to option trading and cannot afford much losses, so if I want want trade in deep OTM option then what kind of strategies i must follows. Reason to choose deep OTM is a SINGLE DIGIT PREMIUM.
So what kind of strategies i must follow?

Not necessarily. You can book profit before expiry if nifty starting moving in your direction…Most if the cases far OTM goes worthless if you wait till expiry.

Their delta is too low.
Consider it

In option trading time is everything.

As a laymen … just think can nifty go 11000 till 28th May ? Answer is no. So if you buy 11000 CE at 1 rs also… it will go down.

2nd scenario … can nifty go 11000 till 25th Jun … possibility is 10-20% so do your chance of getting profit .

Deep OTM call give you profit only if market makes violent move in your direction.

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Iss type ki harkat karoge to market chhodega nahi babu moshaye… Aapke iss sawal se ek chiz bilkul clear hoti hai ki apko abhi basics clear nahi hai…

agar me honestly bolu to apko bas thodi mehnat karni hai… iss link ko dabana hai aur apke saare doubts dhire se clear hote jayenge. https://zerodha.com/varsity/ dhanyawaad. :slight_smile:

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Since we’re discussing about CE & PE. I’m holding Nifty 9000 PE @ 156/- Strike Price and the spot price is 95/-. Nifty is hovering its position between 9000 - 9050. In a situation like this, do you all think it’s risky to still hold on to the PUT call or do you suggest that I should come out of it accepting the loss.

I’m a newbie, however have researched a bit in past few days. Looking at the current OI, POP, Change in OI, No.of trades for ATM, OTM, ITM by EOD last week, looks like game is still on. Slight pull back and the Nifty will eventually be below 9000 and the FII, DII data doesn’t look convincing, followed by RBI Governor’s meet last week which didn’t satisfy the market and Dow Jones closing in Red. These all factors does give a slight edge and a ray of hope for me. Do ya’ll think of the same or it could be otherwise?

Need your inputs…

Also, I think what happens across the World Market today is going to have a definite impact on Indian Market tomorrow…Do ya’ll agree?

Please do share your thoughts and views on this…

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First of all, wrong topic to post your query. Delete the post.
Regarding your queries.
In trading there is only one truth - Stop Loss.
If you are comfortablle to lose entire premiumho;d the PEs.
Even after you do some sort of extensive study and write 500 pages on why nifty will go down tomorrow. Fact is that, there is only 50% chances of it happening.

So even if you are 121% sure of downfall, exit ifi your SL is hit. Period.

First of all, I didn’t knew that it was a wrong place to discuss. My post was initially not approved by the moderator so thought anyways it’s not going to show up on this thread. Mod could’ve deleted it rather than approving.

If you’re the Mod, thanks for letting me know. And secondly, what you’ve said is right, even if I write down thesis that will not help Nifty move Down or Up in any way possible. It’s just that I’m optimistic and as you said 50% chance is still there and that is enough for markets to turn up side down.

Will decide whether to risk entire premium or to exit with SL. Thanks again for throwing some light on this.

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Do know the probability of profit or POP for options. If you buy an option for Rs. 1 which can become 1000 but the probability of it becoming Rs. 1000 is less than 1%, then you will have to take hundreds of trades to be profitable. It’s nothing less than gambling in this case. Even most gambling tables have more than 40% probability of profit.

Let me explain with a simple example.

Let us assume you bought 9500 CE when nifty was at 9390.
Now, on expiry day nifty rises around 60 points to reach 9450. Even at this level, your 9500 CE is still OTM.
At 3:30 pm on expiry day it will go all the way down to 0 (or 0.05, the lowes possible value) since it will expire OTM. Even if you paid Rs 150 for the option on Wednesday, on Thursday there is an expectation that it will still expire OTM and it will gradually loose value.

Note that even if nifty expires at 9510, i.e. Rs 10 ITM, the price of 9500 CE will eventually expire at around Rs 10, i.e. the amount by which it is ITM.

The difference in price is the due to the time value of the option, called theta. See this for a detailed explanation: https://www.investopedia.com/terms/t/theta.asp

Trust me buddy in market or in real world, there is no free lunch. And if you are new to option trading, try currency options instead. But expecting something for nothing is a wrong strategy.