Stock Option Question

[aspardeshi]

I want to know the answer of below scenarios in India.

Example: Infosys is trading at 2700 and I write a put of 2500 strike. The premium on 2500 strike is 1 INR and lot size is 125. So I will receive a premium of 125 INR. Now my question is;-

1. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR, and option does not expire, whether I am at loss of 3 INR here ?
2. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR and the option expire, whether I am at loss of 3 INR here ?
3. If infosys go up to 2800 and my put price is zero at expiration, what is the effect on my account. How much credit will I receive, Initial credit, or revised credit at the time of expiration based on the expiration price ?

I understand here quiet well that if infosys come below 2500 then I need to purchase 125 shares of infosys at price of 2500, if that put is on me or excercised on me.

Your help will be really appreciated.

 

[WklyOptions]

I want to know the answer of below scenarios in India.

Example: Infosys is trading at 2700 and I write a put of 2500 strike. The premium on 2500 strike is 1 INR and lot size is 125. So I will receive a premium of 125 INR. Now my question is;-

1. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR, and option does not expire, whether I am at loss of 3 INR here ?
2. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR and the option expire, whether I am at loss of 3 INR here ?
3. If infosys go up to 2800 and my put price is zero at expiration, what is the effect on my account. How much credit will I receive, Initial credit, or revised credit at the time of expiration based on the expiration price ?

I understand here quiet well that if infosys come below 2500 then I need to purchase 125 shares of infosys at price of 2500, if that put is on me or excercised on me.

Your help will be really appreciated.

Hi, aspardeschi,

Please see my responses to your questions below:

1. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR, and option does not expire, whether I am at loss of 3 INR here ?

Technically, your position will carry an open, unrealized loss of (-3) INR on your Profit/Loss indicator. You should be able to see this (-3) INR as an open loss on your software platform.

2. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR and the option expire, whether I am at loss of 3 INR here ?

No - at Expiry - if it is at 2600, then your short 2500 put will be Out-of-The-Money (OTM) and so it should expire worthless. You will keep the entire credit.

3. If infosys go up to 2800 and my put price is zero at expiration, what is the effect on my account. How much credit will I receive, Initial credit, or revised credit at the time of expiration based on the expiration price ?

Again - at Expiry if > 2500 - your short put will be OTM and expire worthless. You will keep the entire credit received.

Hope this answers your questions above! Good luck!

Regards

WklyOptions

 

[lloydbee]

Hi, aspardeschi,
1. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR, and option does not expire, whether I am at loss of 3 INR here ?
1.a - depending on how much time is remaining till expiration it will be -3 or less (possibly in profit) the closer it is to expiration.

2. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR and the option expire, whether I am at loss of 3 INR here ?
2.b - As time decays this scenario it would most definitely turn the -3 unrealized loss into a profit by the day before expiration. The options will definitely expire worthless at expiration

3. If infosys go up to 2800 and my put price is zero at expiration, what is the effect on my account. How much credit will I receive, Initial credit, or revised credit at the time of expiration based on the expiration price ?
3.b - Your Net Liquidity will show previous cash balance plus this credit received the moment you enter the trade and your account will remain the same. Previous balance plus 125 - commissions.


I hope this also helps.

Lloyd

 

[aspardeshi]

Hi, aspardeschi,
1. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR, and option does not expire, whether I am at loss of 3 INR here ?
1.a - depending on how much time is remaining till expiration it will be -3 or less (possibly in profit) the closer it is to expiration.

2. If infosys come down to 2600 and my put price increase to 4 INR from 1 INR and the option expire, whether I am at loss of 3 INR here ?
2.b - As time decays this scenario it would most definitely turn the -3 unrealized loss into a profit by the day before expiration. The options will definitely expire worthless at expiration

3. If infosys go up to 2800 and my put price is zero at expiration, what is the effect on my account. How much credit will I receive, Initial credit, or revised credit at the time of expiration based on the expiration price ?
3.b - Your Net Liquidity will show previous cash balance plus this credit received the moment you enter the trade and your account will remain the same. Previous balance plus 125 - commissions.


I hope this also helps.

Lloyd

Hi Brothers,

Greetings ! and Thank you both for your answers. One of the broker threatened me of losses here. He said that if I short out of the money put, then my losses will be linear, and it will go on increasing if the share price come down and premiums increase. My losses can go in millions as told by him. He told me to better trade with a stop loss ? Stop loss on Premium ? Now why shall I trade with a stop loss, if I am willing to purchase at the specified price ? I told the broker that I am just concerned about my put strike price, If the share price come at my put price then I am willing to purchase at that price. One of the brokers also told me that writing out of the money put is in the money for me, So why shall I worry about the premium surge, as long as the option is in the money for me ? Please enlighten me here also. :idea:

Now only one thing remains, Please answer, If infosys come on or below 2500 and my put price increase to 4 INR from 1 INR then how is the option settled, if the put is on me. as I have received 1 INR initial credit only. At this time I am willing to purchase at the strike of 2500 INR but whether my transaction will be settled at share price net of 1 INR credit or 4 INR credit excluding brokerage. Please let me know.

One more thing which has also struck my mind is that if the share price start falling and nearing my OTM put write strike price, then whether buying ATM put or a bit higher OTM put or buying put at the same strike of my OTM initial put, help me survive at no profit no loss or better ?

Thanks once again for your quick answer and your valuable time extended. Please enlighten me. :idea:

 

[aspardeshi]

The best call in Stock Futures that I got today says that it is good to buy BHARAT FORGE FUTURE above 903 Target 906, 910, 916 Stop Loss 899.95.

Hello Epicadvice,

Thank you for your reply, but my last thread remained unanswered, can you please answer my last thread ??

Regards,