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.
good article.i like this because of a very simple and easily understandable language.
ReplyDeletekeep it up...the post is really very nice and informative.
ReplyDeletethanks for such a gr8 post explaining the calculation of profit and loss in trading
ReplyDeletegood post keep it up.
ReplyDeletegood article i like reading your posts
ReplyDeleteHi, Can you please provide an excel calculator for Option Strategies Nifty options strategies
ReplyDeleteThanks for the great tips on option . I guess my problem has been solved now about doubt related to option
ReplyDeletethanks aaradhya for showing interest in our blog you can also Check nifty
DeleteWhat a wonderful post! Your predictions are perfect for a looooooooong day trading.Thank you so much for sharing!
ReplyDeleteThank you so very much for this highly informative post! I sincerely appreciate all your trading tips and suggestions
ReplyDeleteJust stumbled upon your site and love it!
ReplyDeleteTHANK YOU so much for this advice! I’ve got a trading plan for next week
ReplyDeleteThanks for sharing these tips. It seems you need to be more prepared when you have a fixed trade plan
ReplyDeleteThanks for sharing this but but what about premium one have paid as 4400
ReplyDelete