Explain this Derivative call

General
1

Buy NIFTY 26-Jun-2014 PE 7600 @ 57 (Short term) | 50 Quantity :

what is “57” here ?

What’s the total investment required for this transaction? And what is the maximum possible PROFIT & LOSS one can get in this contract and how it is calculated ? Kindly explain me in detail, I’m new to derivatives :slight_smile:

2

Hi,

57 is the last traded price of 7600 PE, Total amount required to buy this option is ASK PRICE * 50

3

57 is the premium amount that you need to pay to own a 7600 Put Option on Nifty expiring on 26th of June 2014.

The transaction requires a total out lay of Rs.2850 (Premium x Lot size which is 57 x 50). This also happens to the maximum loss on the transaction.

Tomorrow the premium can be anything based on how the market move...lets assume the premium moves to 100 so you will make profit of - current value of premum minus your original cost times the lot size..in this case [100-57]*50 = 4300.

So while the loss is fixed at 2850...your profit potential is theoretically unlimited.

Good luck and happy trading :-)

4 Likes
4

very clear, thanks a lot :slight_smile:

5

and so the contract ends on the given date we can even exit the contract before the expiry date…am I ryt?

6

and what about premium? is it refundable ?

7

Yeah, you can exit the contract any time during the expiry. If you bought it at 57 at 10:00AM and the premium goes to 61 at 10:30, you can exit for a 4/- profit within 30 mins.

8

Premium is non refundable. Premium x Lot size = 57 x 50 = 2850 is immediately taken from your account and this will not be returned. This is money outflow from your account. This premium will be credited to the person who sold you the option.

When you sell your option later at say at 61, then 61x50 = 3050, This amount is credited your account. This is money inflow.
Net Profit = Money inflow - Money outflow = 200
(This is without cosnidering brokerage and other charges)