Tuesday 1 May 2012

OPTION CALL PUT STRATEGY


OPTION CALL PUT STRATEGY

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Nifty is being trading in a range bound session since a long time, a break out is  at this point. We suggest nifty strangle strategy  is as follows
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NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 5200 PUT @ 70
LEG2: BUY NIFTY 5400 CALL @ 45
COST =115          
 RISK PER LOT = 5750
RETURN = UNLIMITED
UPPER BREAK GIVEN POINT=5515
LOWER BREAK GIVEN POINT=5085
Pay off table


Strike Price
Call Option Price
Strike Price
Call Option Price
Strike rate
Closing price
Lot size
net investment
Total Investment
Payoff
5400
45
5200
70
50
4550
50
5750
5750
26750
5400
45
5200
70
50
4600
50
5750
5750
24250
5400
45
5200
70
50
4650
50
5750
5750
21750
5400
45
5200
70
50
4700
50
5750
5750
19250
5400
45
5200
70
50
4750
50
5750
5750
16750
5400
45
5200
70
50
4800
50
5750
5750
14250
5400
45
5200
70
50
4850
50
5750
5750
11750
5400
45
5200
70
50
4900
50
5750
5750
9250
5400
45
5200
70
50
4950
50
5750
5750
6750
5400
45
5200
70
50
5000
50
5750
5750
4250
5400
45
5200
70
50
5050
50
5750
5750
1750
5400
45
5200
70
50
5100
50
5750
5750
-750
5400
45
5200
70
50
5150
50
5750
5750
-3250
5400
45
5200
70
50
5200
50
5750
5750
-5750
5400
45
5200
70
50
5250
50
5750
5750
-5750
5400
45
5200
70
50
5300
50
5750
5750
-5750
5400
45
5200
70
50
5350
50
5750
5750
-5750
5400
45
5200
70
50
5400
50
5750
5750
-5750
5400
45
5200
70
50
5450
50
5750
5750
-3250
5400
45
5200
70
50
5500
50
5750
5750
-750
5400
45
5200
70
50
5550
50
5750
5750
1750
5400
45
5200
70
50
5600
50
5750
5750
4250
5400
45
5200
70
50
5650
50
5750
5750
6750
5400
45
5200
70
50
5700
50
5750
5750
9250
5400
45
5200
70
50
5750
50
5750
5750
11750
5400
45
5200
70
50
5800
50
5750
5750
14250
5400
45
5200
70
50
5850
50
5750
5750
16750
5400
45
5200
70
50
5900
50
5750
5750
19250
5400
45
5200
70
50
5950
50
5750
5750
21750
5400
45
5200
70
50
6000
50
5750
5750
24250
5400
45
5200
70
50
6050
50
5750
5750
26750
5400
45
5200
70
50
6100
50
5750
5750
29250
5400
45
5200
70
50
6150
50
5750
5750
31750
5400
45
5200
70
50
6200
50
5750
5750
34250

The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.

Wednesday 25 April 2012

WHAT IS PUT OPTION



What is PUT OPTION

If you think a stock price is going to go down, then there are 3 trades that you can make to profit from a rising stock price: 
  1. you can sell the stock
  2. you can buy put options on the stock, or
  3. you can write call options on the stock
Selling stock  huge capital investment i.e.your total capital is @ risk plus u need to cover it cover intraday or supply delivery
Writing call option also need huge margin and risk associated with it is unlimited
Buying put option give u unlimited profit upside and limited risk downside.
Only enemy of put option is time so u should book your profits as early as possible.



Let’s understand using an example. Suppose, today’s date is 25-APR-2012 and you BUY a RELIANCE PUT option (strike=700, EXPIRY  MAY 31) @ Rs. 10  per contract when RELIANCE stock was getting traded at 740. Let’s see what happens after options expiration.

Case I : Reliance stock price greater than the strike price  on expiry day cut-off time

Net loss = Premium paid = Rs. 10 per contract


Case II : Reliance stock price less than strike price (700) on expiry day cut-off time i.e. 640
Net profit = (current price – strike price) - premium = (700-640 ) -10= Rs. 50 per contract


So when you buy a put option you have unlimited profit potential but limited risk or downside.

Monday 23 April 2012

OPTION CALL ROCKING!!!

Nifty MAY 5100 PUT given on 19 april 2012(http://niftytipsniftylevels.blogspot.in/2012/04/nifty-outlook-for-tomorrow_18.html) is rocking now!!!.call given @56  TG 86,target achieved enjoy your profits ! keep reading …..


For Nifty Daily Outlook and free intraday nifty tips please visit Nifty Tips

Wednesday 18 April 2012

WHAT IS CALL OPTION



CALL OPTION

If you think a stock price is going to go up, then there are 3 trades that you can make to profit from a rising stock price: 
  1. you can buy the stock
  2. you can buy call options on the stock, or
  3. you can write put options on the stock

Buying stock need huge capital investment plus your total capital is @ risk
Writing put option also need huge margin and risk associated with it is unlimited
Buying call option give u unlimited profit upside and limited risk downside.
Only enemy of call option is time so u should book your profits as early as possible.



Let’s understand using an example. Suppose, today’s date is 18-APR-2012 and you buy a RELIANCE CALL option (strike=800, EXPIRY  MAY 31) @ Rs. 20  per contract when RELIANCE stock was getting traded at 760. Let’s see what happens after options expiration.

Case I : Reliance stock price greater than the strike price. Reliance stock trading at 840on expiry day cut-off time

Net profit = (current price – strike price) - premium = (840–800 ) -20= Rs. 20 per contract

Case II : Reliance stock price less than strike price (800) on expiry day cut-off time
Net loss = Premium paid = Rs. 20 per contract

So when you buy a CALL option you have unlimited profit potential but limited risk or downside.



Saturday 14 April 2012

OPTION PUT CALL RATIO



PUT CALL RATIO
 Put Call Ratio is one of the most common technical indicators used by investors and traders. Why? Well, it is designed to quantify investor sentiment, which many market technicians believe is the primary factor in market turns and trends.
It is calculated using the activity of options buyers, who are focused on anticipating moves within a certain time period. The most common method of measuring the Put Call Ratio is to divide the number of put contracts by the number of call contracts traded during a set time period. Investors buying puts are anticipating lower prices, while call buyers expect the market to rally.
This ratio tells us about the level of bullishness or bearishness in the market. PC ratio can be used in two ways, either the direct way or the contrarian way. For the direct way, you simply follow the ratio and flow with the tide, and for the contrarian way when bullishness is high then downside risk is also high so you take a contrarian view and sell or vice versa. It can act as a preventive measure against sentiments which often lead to buying when the market is high and selling when it is low.
PC ratio goes well with overbought and over sold indicators. A low PC ratio, generally below one, reflects a bullish sentiment and vice versa. It can be based either on open interest or volumes. PC ratio on volumes indicates the sentiment on that particular day while PC ratio on open interest (PCR-OI) gives a carry forward view.
Open interest is the total number of options and/or futures contracts that have not yet been exercised, expired or fulfilled by delivery on a particular day. PCR-OI is mainly used to gauge the sentiment for the coming trading sessions.
Theoretically, if one buys a put option then he is bearish on the underlying and one who buys a call option is bullish on the same. This theory works very well in matured markets where options turnover as well as open interest is significantly high. So there, one can form a conclusion that if PCR-OI is high then market participants are expecting underlying to correct and vice-versa. However, PCR-OI is not seen in isolation, it is seen with price movement. For example, if underlying after moving up has become range-bound and then you see that PCR-OI of that underlying is increasing then one may say that participants are expecting correction and vice-versa.