Wednesday, 3 April 2013

CALCULATION OF PROFIT N LOSS IN OPTION TRADING

While it comes to calculation, there are 2 things we have to learn – how to calculate the break even point of an option and how profits/losses are calculate. Let’s go with an example, nifty to understand better how profits and losses are calculated in options trading. The lot size of nifty is 50 shares in number irrespective of call or put. The profit/loss does not depend on the type of call , expiry or strike price. It directly depends only on premium which trader selects while purchasing the option....


For instance, if 1 lot of nifty call 5600 is bought at 88. The investment required to purchase this option is approximately Rs.4400 (50 x 88 = 4400) leaving brokerage and other costs. If the same option is sold at 120, the profit in terms of points is around 32 (120-88). Now its pretty simple that multiplying the number of shares with the difference premium (32) gives us the profit (50 x 32= Rs.1600) per 1 lot. Exact calculation goes with the PUT option too as even in case of nifty put, same kind buying takes place.
coming to the loss side, the maximum loss one can get with the above put option is Rs.4400 as that is the maximum loss trader agreed to spare at the time of buying. So even if nifty collapses huge in the other direction of your nifty call or nifty put, the maximum loss is limited. This is the area where option trading stands special when compared to other types of trading.

18 comments:

  1. good article.i like this because of a very simple and easily understandable language.

    ReplyDelete
  2. keep it up...the post is really very nice and informative.

    ReplyDelete
  3. thanks for such a gr8 post explaining the calculation of profit and loss in trading

    ReplyDelete
  4. good post keep it up.

    ReplyDelete
  5. good article i like reading your posts

    ReplyDelete
  6. Hi, Can you please provide an excel calculator for Option Strategies Nifty options strategies

    ReplyDelete
  7. Thanks for the great tips on option . I guess my problem has been solved now about doubt related to option

    ReplyDelete
    Replies
    1. thanks aaradhya for showing interest in our blog you can also Check nifty

      Delete
  8. What a wonderful post! Your predictions are perfect for a looooooooong day trading.Thank you so much for sharing!

    ReplyDelete
  9. Thank you so very much for this highly informative post! I sincerely appreciate all your trading tips and suggestions

    ReplyDelete
  10. Just stumbled upon your site and love it!

    ReplyDelete
  11. THANK YOU so much for this advice! I’ve got a trading plan for next week

    ReplyDelete
  12. Thanks for sharing these tips. It seems you need to be more prepared when you have a fixed trade plan

    ReplyDelete
  13. Thank you for the helpful information. I also think that Forexminute.com is a good website, it has very helpful
    information for profit & loss calculator, pivot point calculator, AvaTrade review, gallant capital markets, forex tools, foreign exchange brokers, buy bitcoins, etc.

    ReplyDelete
  14. Thanks for sharing this but but what about premium one have paid as 4400

    ReplyDelete
  15. Thank you for posting this article. This article are valuable for all people. Commodity Market tips

    ReplyDelete