when I buy a PUT or a CALL option and pay a margin upfront, is the profit and loss I see in my ‘Positions’ tab inclusive of this premium? For eg, if i pay a premium of Rs.8000 for buying a PUT option and after a week, I see a profit of Rs.2000 in my ‘Positions’ tab and I decide to square off, am I really netting a profit of Rs.2000 or a loss of Rs.6000? In other words, should I earn more than Rs.8000 in my P&L section to square off profitably?
It’s very basic point of options premium. When you buy a call/put the premium is deducted from your account and option writer will get premium in your case Rs 8000. Assume that the premium was Rs 8 and lot size is 1000
Your account = -8000
Option writer = +8000
Now if the market moves in your direction and suppose the profit is shown as Rs 2000. Now this means the cost he the option premium is now increase by Rs 2. So new option premium is Rs 10 and the moment you square off your position you will get Rs 10,000 to your account.
Under option premium it display: -10000 (Negative means you are receiving the amount.
Note: I am a beginner and have spent time learning options modules and now learning options strategies. If my answer is wrong please correct me.