I am new to the market. My questions are may be basic. But I have doubts regarding options.
Suppose currently Nifty aug 10000 ce has a premium price of 103 and I bought it. So
Question 1) the spot price is 9956. And lets say it increases to 9970 and if i sell then will i earn profit?
2)And if so then what is the point of having so many options like 8000 ce, 8500 ce, 9000 ce etc.
I also have read varsity but my doubts are not cleared.
You may take some cues from this discussion thread
regarding many options like 8000 ce, 9000 ce etc. they are currently deep in the money
in the money options have better chance of staying so as long as underlying is above the strike price
see 1 thing… 10000 price is not yet achieved and the 10000 ce option which is currently out of money is priced currently based on pure time value of Rs. 103
None can guarantee that 10000 may come as of today or in next 1 month even though probabilities are highly in favour of it
so an increase of Rs 44 in spot (10000-9956) will result in higher returns in itm option rather than otm options as itm option delta is much higher than otm option. Hope its clear to you
Ok. The premium will obviously increase as the spot price increases. Is not it. So if spot price increases from 9950 to 9980 the premium will also increase by sone points and then I sell the call option of nifty aug 10000 ce. Then I get prodit i guess.
And if so why so many call opions like 9960 ce or 8900 ce. One would not buy 8900 ce obviously because then one has to pay a higher premium. So those are available.
- Yes, you will as the call option tends to gain value when the spot price increases
- At every strike, the risk - reward profile changes. It is really up to you which contract you want to transact in.
So I earn profit in buying10000 ce even if spot price doesnot reach 10000. Rather it increases from 9950 to 9980 and 10000 ce premium increases from 103 to 108 say.