Options trading doubt

General
1

I have bought 3 lots of Nifty @Rs.32 few days back. Yesterday I have added 5 lots again at the rate of Rs.7/-
Now my doubt is whether there is any way to SELL them separately. Suppose today nifty hits 20 points I can make profits by selling the options bought @7. And if tomorrow (let us assume) if nifty hits 55 points then I can sell options bought @32. Hope my question is clear.
I don’t know which option is being sold, when I hit the SELL button??? Please clarify…

2

Hello @janvick

Futures and Options is settled on a First In First Out basis(FIFO basis). What this means is that the Option that is bought first will be sold first. The option that is bought second is sold second.

In your example,

You first bought 3 lots of a Nifty option at 32. You then added 5 lots at Rs.7. Taking the average price of all these lots, you hold 8 lots at 16.38.

Now, the option is trading at 20. For a lot size of 75 and for 8 lots at 16.38 - you are currently at a profit of (20-16.38) * 8 * 75 = Rs.2175

If you sell 3 lots first at this point, the 3 lots you bought first at 32 will be sold first at 20, on this trade you will make a realized loss of (32-20) * 3 * 75 = Rs.2700 loss

You still hold 5 lots at 7 which is at an unrealized profit of (20-7) * 5 * 75 = Rs.4875 profit

Subtracting the profit and loss, you get 4875 - 2700 = Rs.2175. This is the same profit you have when the profit is calculated from the average price.

The important point here that you need to understand is that no matter which option you sell first, the average price of all your options will still remain the same. Although the system performs FIFO, whether you sell your lots bought at 32 or bought at 7, you profit at the end of the day is the same.

You need to remember 3 important points -

  1. To know your current total profit/loss, calculate it from the average price of all the options.

  2. To know your realized profit/loss, calculate it from the price of the options already sold.

  3. To know your unrealized profit/loss, calculate it from the price of the options that are open.

4 Likes
3

I had a doubt on Options. While checking on the NSE website, the implied volatility is not shown on the day of expiry of the options. Kindly clairfy how does this work? Link below.
https://nse-india.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=934&symbol=AUROPHARMA&symbol=auropharma&instrument=OPTSTK&date=-&segmentLink=17&segmentLink=17

4

lovely, wonderfully explained

5

I am also having some doubts regarding option trading and i am having the advisor who given me trading tips and stocks to buy today, for trading. by the way great content and very detaoled information.
Thank you