Following is my position:
On 15th March 2017,
I buy 9050 April call option, at the money, premium 233.95
Underlying Nifty was trading at 9092
I bought two lots. One lot is 75.
On 16th March 2017:
premium =193
Underlying in nifty was trading at 9150 .
pts move up = 58 pts
delta = 0.55 (since call option ATM)
change in premium = 58 x 0.55
=31.9
new premium is expected around = old premium + change in premium
= 233.95 + 31.9 = 265.85
So, my profit on exit per lot is = 75 x 265.85
= 19938.75
So, my profit on exit for 2 lots is = 19938.75 x 2
= 39877.5 /-
net profit = income - expenses
39877.5 - 35092.5
= 4785 /-
my question is: but my position is showing 17 % loss. and when nifty is up, the premium should also move in profit. but this is not in my case, please explain
did you just point out that on the 16th the premium was 193 ? In that case how can you expect a profit. you are exiting the trade at premium lower than what you paid so what you will receive will end up making you having a loss. its simple calculation how you got the 17 % loss.
233.95-193= 40.95
40.95 / 233.95 * 100% = 17.5 %
when you buy an option and the premium goes down there is noway you profit by exiting the trade unless you wait till the expiry and make an profit on underlying price if it is in your favour.
i thought it was as simple as " the nifty should move in your desired direction". if it moves in your desired direction, then the call option will also move in your favour.
is it so, i mean i based all my calculations only on the direction of the nifty.
Price of option not just depends on the direction and magnitude of price move. It depends on volatility also.
Check zerodha varsity’s Options module for more insight.
yes the price may depend on various other things but you can make profit from the stock moving to your direction only on the expiry day if you exercise your rights. what you have done is tried booking profit on the premium in that case it is simply because the premium was falling thats why you realized a loss.
how to spot the low volatility pricing and how to tame down volatility, any ideas for capturing low volatility prices of nifty.
how to get down on premium prices, how to know when to buy the call option, when the premium is low or suitable for buying the option at the present moment.
Options are more complicated than futures. When you buy an option, its not price action alone that determines the underlying option value. Its also volatility. If volatility is very high when you buy an option, and you sell it at low volatility, you can make losses even if the price of the future has gone up. Better stick to option spreads and use some algorithm to calculate expected returns
is it so, that for tackling volatility, if i am able to buy the call option when the market is moving sideways, then at that time, will the premium be low as the premium is also dependent on the volatility. so, i think the market moving sideways will have low volatility, and low volatility in turn will produce low premium for call option. so, buying the call option when volatility is low will make the NSE to place the premium low for that particular stock, then , other factor is time decay which is we cant manipulate or is dependent on the market participants i guess.
Looking at the trade details in NSE, here is the thing:
The April9050CE is a low liquidity strike with Bid-Ask spread of 35-40. On 14thMarch, it has closed at 182. On 15th March, u hv bought the CE option at Market fr 233Rs. Afterwards, the premium of the option strike has got adjusted properly to its right price arnd 193.
U shud always use option calculator to know the right premium of the option strike fr a particular day & price before buying/selling. Also, do not trade option strikes with low liquidity.
