Thursday, 15 February 2018

How To make money with PUT Options

The Basic Put Option 
A put option provides an investor with the right, but not the obligation to sell a stock at a specific price.This price is known as the strike, or exercise price.
If you believe a specific stock or market will go downwards in near future you buy plain put option for that particular stock or index.The price of this option moves opposite to underlying security price.

Writing Put Options for Income
Buying a put option is similar to going short on a stock, or profiting from a fall in the stock price.  However, an investor can also short, or write a put option.  This lets him or her receive income in the form of receiving the option price and the hope is the stock remains above the strike price.  If the stock falls below the strike price, the put writer has the obligation to buy the stock (because it is effectively “put” to him or her) from the put option holder.  Again, this occurs if the stock price falls below the exercise price.
When writing put options, the investor who is short is betting that the stock price will remain above the exercise price during the term of the option.  When this happens, the investor is able to keep the premium and earn income from the strategy.
Combining One Put with Another Option 
To create  a more advanced strategy and demonstrate the use of put options in practice, consider combining a put option with a call option.   This strategy is known as a straddle and consists of buying a put option as well as going long a call option.  In this case, the investor is speculating that the stock is going to have a relatively significant move either up or down. 
For example, assume a stock trades at Rs 1000.  The straddle strategy can be relatively straightforward and consist of purchasing both the put and call at a strike price of 1000.  Two long options are purchased with the same expiration date and a profit is reached if either the stock moves up or down by more than the cost to purchase both options. 

Looking at an actual stock,  shares of Reliance recently traded around 1000 per share.  A call option trades at Rs 14 and a put option trades at Rs 15 for a total cost of Rs 28 for a single contract.  In this case, the stock would have to move up past Rs 1028 for the call option to start to pay off and below Rs 972 for the put strategy to start to pay off.

Friday, 2 February 2018

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Monday, 29 January 2018

Monday, 1 January 2018

Monday, 11 December 2017

HOW TO WRITE OPTION WITHOUT "RISK"

One of the less risky option strategies is called “covered call writing.” For example, you own a stock that has increased in price but you don’t want to sell it because of the capital gains tax or some other reason. However, you also think the market may be going down and it could affect the stock price. So, you sell a call option against your stock and receive a premium for that option. If the stock does go down, then the option will probably expire worthless and you keep the premium. However, if the stock goes up in price, you may have to sell the stock if the buyer of the call option exercises his right. Before that happens, you can buy back the option and keep your stock, so your only cost was the difference in the initial premium received and the amount you had to pay to buy back the option.
Now let’s say you sell a naked call option on XYZ stock when the price of the stock is Rs100 but you think the price is going down. Someone bought that option from you because they thought the price was going up. So, before the option expires, the stock moves to Rs120. Now the buyer uses his call option to buy the stock from you at Rs100. You then have to go into the market and buy it for Rs120 and sell it to him for Rs100. You've lost money obviously, but the stock could have moved much higher so the potential for loss is unlimited. If you had owned the underlying stock and sold that option, you could just deliver the stock to the buyer of the option as we discussed in the covered call writing example above.

Trading options is not easy and should only be done under the guidance of a professional who not only has the knowledge but also the experience in this area.