Writing of options

General
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scene: I write call option @ 6700 for Rs.100 in NIFTY. Premium credited for Rs.5000

If the price goes to Rs.120, and if I want to come out @ Rs.120 how is my loss is calculated and what happens to my premium credit?

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2

any option selling is backed by margin . in this example your margin will be debited to the appropriate amount in case the position goes against you …

loss shall be 20 *50 = 1000 . and please note premium credited in begining shall be 100 *50 = 5000 and not 3000.00

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let you mr. x  .
you sold a call option with a strike point ( strike price or exercise price ) of  6900  which bearing a premium of rs. 100.  ( ignore brokerage ) here you are call writer means you sold call option to some other who is a call holder. you sold call as your perception on underlying asset is Bearish ( i.e., price of underlying asset may fall ) and of the call holder is bullish ( i.e., his perception is price of underlying asset may rise ). You have the obligation to sell if the holder wants to exercise on exercise date....thats a different story.... let it be...

now , as u said , premium goes to 120 rs which means call holders in market are ready to pay a premium of rs 120 for the same kind of option you writes , has strike price of 6900. this indicates bull trend of underlying asset (here it is Index ).

to be much clear , here 1st u slod a call option and received a premium of rs 5000 ( 100*50)
now , u want to square off your position ( i.e., you wanna exit...) . to do so , you have to buy a call option with same exercise price of 6900 at cost of prevailing premium for such call  otpion , which is rs 6000 ( 120*50)

therefore , you sold at rs 5000 and bought at rs 6000  net loss is rs 1000. ( simply , buy for 6000 and sold for 5000 :( )

1st u receved premium 5000 and nxt u paid premium 6000 to square off....
so , u left with net loss of 1000....

if premium goes to 80 when you wish to squaeoff , u have to buy at 4000 ( 80*50) to square off.... so , you received 5000 and paid 4000 and left with 1000 profit :)

Thank you...


As i am learning fundamentals of market , i dont know what will happen exactly...:)

so , plz forgive me if am wrng...

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scene: I write call option @ 6700 for Rs.100 in NIFTY. Premium credited for Rs.5000

You get to keep your premium permanently. No need to worry about that

If the price goes to Rs.120, and if I want to come out @ Rs.120 how is my loss is  calculated and what happens to my premium credit?

If market moves against you, you need to spend more money (than what premium you received) in order to get out of it. So here, now you should buy the same option (square off) with a premium of 6000 rupees (120x50) to get out of the contract you were holding previously. You received premium of 5000 rs. earlier and you have spent 6000 rs. to get out of that contract now. So you are in 1000 rs. loss in net.

I am little confused. I made CALL option writing.  If the price becomes 80, I must be in profit...... correct?

If market moves in favor of you, say the premium price is now trading at 80 rupees, you can put a stop loss Buy for same option at 80 rupees and wait and see if the premium still goes down to 75 or less. in this case, if your stop loss is hit, you will pay 80x50=4000 to get out of that contract you were holding previously. So you got a premium of 5000 initially, and spent 4000 to get out that contract, So in net you are 1000 rs. profit.

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Thank you… I changed the value of premium credit… just typing error

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Thank you… I changed the value of premium credit… just typing error
Will my premium credit becomes “ZERO” if I want to come out before expiry?

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well it depends at the time of squaring off . if the premium is less than 100 eg say 80 your account will be debited by 4000 . so net profit will be 1000 ( 5000 credit and 4000 debit )
rgds

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I am little confused. I made CALL option writing. If the price becomes 80, I must be in profit… correct?