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Call Option and Put
Option: An Overview
Many young traders are attracted to the future & Options
because they assume that they can earn huge returns in a short period of time
by trading in F&O and they don't need too much money. However, it comes
with a lot of risks. So, it is important to understand what is put and
call in the share market, the difference between the call and put option, how
it works and the risk associated with it. In this article, we are going to
learn about the call put option, call put meaning, call and put options
examples, share market call and put, and the difference between
call and put option.
What Is A Derivative?
A derivative is a financial instrument. The basic definition of
a derivative is that its value is derived from some other thing. For
example, suppose Virat kohli has signed a Bat. The original price of the bat is
Rs. 1000, but the minute Virat kohli signed on that Bat the value increased
tremendously because of high demand. Hence, the value of the Bat is now derived
from Virat kohli's success and the value of the Bat will fluctuate based on the
performance of Virat kohli.
Key Takeaways
A buy-put option allows traders to earn profits when the market
is down.
Whenever you trade in Futures & Options, it comes in lot
sizes. So, you cannot buy one share. The lot size is pre-decided by the stock
exchange.
Future & Options gives you leverage which means you get to
trade with borrowed money. This is the reason it is extremely risky.
Types of Derivatives
There are 4 types of derivatives in the share market: Forward,
Futures, Options, and Swaps. Among these four derivatives, forwards and swaps
are not traded in the stock market.
Forward:
Forward means that you are taking a bet today on the future or forward. Let's
understand with an example, a farmer is cultivating potato and he is
assuming that the price of the potato will decrease after 3 months. Let's
say, the price of potato per Kg is Rs. 20 today and after 3 months it may reach
Rs. 15. So, the farmer buys a forward contract from a trader, which means even
if the price of the potato falls down the trader is obliged to buy the
potato from the farmer at a predetermined price. However, there is no
authority to ensure the contract in Forward contracts.
Futures:
Futures contract is listed in the stock market and the exchange itself
authorizes it. So, the exchange takes the responsibility that if you take any
futures contract then you will get the stock and the one who is selling is also
ensured by the exchange. Futures contracts are of 3 types: This month, next
month, and far month. But one thing you need to know about the Future option is
that at the deadline, you will have to buy the stocks that day only. In other
words, you have to take the delivery of the stocks. However, a Futures contract
is tradable which means you can trade it like a stock. For example, you buy a
futures contract of a Tatasteel stock and you can sell it whenever you want to.
So, you can sell the contract, the minute you get a little profit. Make sure
that you have sufficient amounts in your Demat account to take the
delivery.
Options:
Options give you the option of buying and selling on the day of delivery. On
the date of delivery, you will have the option to buy or not to buy at that
price. For example, Tatasteel stock is trading at Rs. 2100 right now. You
assume that the price will increase to Rs. 2200 after a month. So, you decided
that you will buy tatasteel shares at Rs. 2150 after one month. Let's say, the
stock price has reached Rs. 2500 after a month. In options, you get a 10%
margin, which means you will have to give Rs. 200 per share. The margin paid is
Rs. 200 at a stock price of Rs. 2100. so the total cost incurred is Rs. 2350.
Hence, you are getting a stock worth Rs. 2500 at Rs. 2350. But at the other
end, let's say the stock price has reached Rs. 2000 from Rs. 2100. Now that you
have given a margin of Rs. 200, you can buy this stock at Rs. 2150, or have the
option of not buying it. If you buy the stock, you will be at loss.
Options are categorized into two types:
Call Option
A call option is an option to buy a share at a specific price at
a future date. It allows the trader to buy the shares at a certain price in the
future. If traders speculate that the price of the security will rise, they can
sell a put option. When a trader opts for a call option, they buy the shares at
the strike price and hope that the price of the stock will rise. And if the
stock price rises, the trader can buy at the strike price which means they buy
the shares at a lower price and can sell them to earn a profit.
Put Option
A put option is an option to sell a share at a specific
price at a future date. If traders speculate that the price of the
security will fall, they can buy a call option. When a trader opts for a put
option, they get the right to sell shares at the strike price and hope that the
stock price will decrease. if the stock price reaches lower than the strike
price, they can sell the shares to earn profit.
Call and Put Options
Examples
Example of a call
option:
Let's say, you bought a share of a company Tatasteel for Rs.
2100 and the option's value is 10%. You bought shares worth Rs. 2100 by giving
Rs. 200. Let's assume the lot size is 100. So, you gave 200*100 = Rs. 20,000
and got shares worth Rs. 2,10,000. If the share price increases to Rs. 2300
from Rs. 2100, which means the share price increases by Rs. 200. So, the total
profit is the profit per share (200)* lot size (100) = Rs. 20,000. Hence, the
total profit is Rs. 20,000 on the investment amount of Rs. 20,000.
But if the trade goes wrong or the other way, for example, if
the stock price will decrease by Rs. 200. The stock value of Rs. 2100 will
reach Rs. 1900 in the future. Your loss per share will be Rs. 200 and your
total loss amount will be [loss per share (200)* lot size (100)] = Rs.
20,000.
Difference Between Call
and Put Option
Call options give you the right to buy shares. Whereas put
options give you the right to sell shares.
In the case of call options, there is unlimited risk associated
with the option seller. On the other hand, in the case of put options, there is
limited risk associated with option sellers.
In the case of a call option, there is limited risk for option
buyers. Whereas in the case of a put option, there is limited risk for the option
buyer.
To conclude, trading in Futures & Options provides a lucrative avenue to many traders. Traders speculate on the price of the security and get attractive returns when the trade goes well. It is suitable for those who have a high-risk appetite and have a good understanding of futures & options.
CALLS GIVEN IN TODAY'S POST TO CHECK VISIT https://optioncallputtradingtips.blogspot.com/2023/03/stock-option-index-option-stock-future.html
FINNIFTY 17700 28 MAR CALL BUY GIVEN @ 35 ACHIEVED TARGET 47-48 PROFIT OF 960
IOC 76 PUT BUY GIVEN @ 0.35 ACHIEVED TARGET 0.5 PROFIT OF 1462
IEX 132.5 PUT BUY GIVEN @ 1.8-1.9 ACHIEVED TARGET 2.4-2.5 PROFIT OF 2625
NET PROFIT OF 5047 WITH JUST 13,000 INVESTMENT WITHING 20 MIN.
BUY 2 LOT FINNIFTY 17700 28 MAR CALL @ 35 TARGET 47-48
BUY 1 LOT IOC 76 PUT @ 0.35 TARGET 0.5
BUY 1 LOT IEX 132.5 PUT @ 1.8-1.9 TARGET 2.4-2.5
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PAY OFF TABLE
FOR THE TARGET UPDATES CALL OR WHATSAPP ON 9039542248
Strike
Price |
Call
Option Price |
Strike
Price |
Put
Option Price |
Closing price |
Payoff |
290 |
4 |
260 |
6 |
220 |
60000 |
290 |
4 |
260 |
6 |
230 |
40000 |
290 |
4 |
260 |
6 |
240 |
20000 |
290 |
4 |
260 |
6 |
250 |
0 |
290 |
4 |
260 |
6 |
260 |
-20000 |
290 |
4 |
260 |
6 |
270 |
-20000 |
290 |
4 |
260 |
6 |
280 |
-20000 |
290 |
4 |
260 |
6 |
290 |
-20000 |
290 |
4 |
260 |
6 |
300 |
0 |
290 |
4 |
260 |
6 |
310 |
20000 |
290 |
4 |
260 |
6 |
320 |
40000 |
290 |
4 |
260 |
6 |
330 |
60000 |
FUTURE & OPTION CALLS GIVEN IN
TODAY'S POST TO CHECK VISIT https://optioncallputtradingtips.blogspot.com/2023/03/option-future-call-for-27-march-2023.html
ONGC 152.5 CALL BUY GIVEN @ 0.8-0.9 ACHIEVED TARGET 1.4-1.5 PROFIT
OF 2695
NIFTY 17100
29 MAR CALL BUY GIVEN @ 52 ACHIEVED BOTH THE TARGET 62/75 PROFIT OF 1650
HDFCAMC 1640
PUT BUY GIVEN @ 18-19 ACHIEVED TARGET 24-25 PROFIT OF 2100
DELTACORP
180 PUT BUY GIVEN @ 1.5-1.6 CLOSED @ COST NO LOSS NO PROFIT
NET PROFIT
IN OPTION CALL PUT 6445
STOCK FUTURE
CALL BUY AUROPHARMA FUTURE GIVEN ABOVE 505 ACHIEVED BOTH THE TARGET
510- 515 PROFIT OF 15000
STOCK FUTURE
CALL BUY SUNPHARMA FUTURE GIVEN ABOVE 973.50 ACHIEVED 1ST TARGET 980.50
PROFIT OF 4900
NET PROFIT IN STOCK FUTURE 19,900
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BUY 1 LOT DELTACORP 180 PUT @ 1.5-1.6 TARGET 2.7-2.8
STOCK FUTURE CALL BUY AUROPHARMA FUTURE 2 LOTS ABOVE 505 TARGET 510- 515 STOPLOSS 499
STOCK FUTURE CALL BUY SUNPHARMA FUTURE 2 LOTS ABOVE 973.50 TARGET 980.50- 987.50 STOPLOSS 965.50
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OPTION TIPS GIVEN IN TODAY'S POST TO CHECK VISIT https://optioncallputtradingtips.blogspot.com/2023/03/future-option-call-put-tips-for-23.html
NIFTY 17000 23 MAR PUT BUY GIVEN @ 22 BOOKED LOSS OF 1100
M&MFIN 235 CALL BUY GIVEN @ 2.7-2.8 ACHIEVED TARGET 3.5-3.6 PROFIT OF 3600
FINNIFTY 17900 28 MAR CALL BUY GIVEN @ 105 ACHIEVED BOTH THE TARGET 135/168 PROFIT OF 3720
BANKNIFTY 40200 23 MAR CALL BUY GIVEN @ 56 ACHIEVED 1ST TARGET 90 PROFIT OF 850
NET PROFIT IN TODAY'S OPTION CALLS 7070
STOCK FUTURE CALL BUY SUNPHARMA BUY GIVEN ABOVE 976 ACHIEVED 1ST TARGET 983 PROFIT OF 4900
STOCK FUTURE CALL BUY TVS MOTOR GIVEN ABOVE 1063 ACHIEVED 1ST TARGET 1071 PROFIT OF 5600
NET PROFIT IN STOCK FUTURE 10500
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BUY 2 LOT BANKNIFTY 40200 23 MAR CALL @ 56 TARGET 90/120
STOCK FUTURE CALL BUY SUNPHARMA FUTURE 2 LOTS ABOVE 976 TARGET 983- 990 STOPLOSS 968
STOCK FUTURE CALL BUY TVS MOTOR FUTURE 2 LOTS ABOVE 1063 TARGET 1071- 1079 STOPLOSS 1054
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