OPTION (CALL & PUT) FREE CALLS FOR MONDAY 18 MAY 2015

BUY VEDL 200 PUT @ 2.80 TGT 4.90/6.70 SL 1.20

BUY REL INFRA 440 CALL @ 8.40 TGT 12.90/16.40 SL 5.2

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The calendar spread refers to a family of spreads involving options of the same underlying stock, same strike prices, but different expiration months. They can be created with either all calls or all puts.  Also known as time spread or horizontal spread.

Call Calendar Spread

Using calls, the calendar spread strategy can be setup by buying long term calls and simultaneously writing an equal number of near-month at-the-money or slightly out-of-the-money calls of the same underlying security with the same strike price.

The idea behind the calendar spread is to sell time, which is why calendar spreads are also known as time spreads. The options trader hopes that price of the underlying remains unchanged at expiration of the near month options so that they expire worthless. As the time decay of near month options is at a faster rate than longer term options, his long term options still retain much of their value. The options trader can then either own the longer term calls for less or write some more calls and repeat the process.

BANKNIFTY OPTION STRANGLE STRATEGY

BUY BANKNIFTY 17000 PUT @ 118

BUY  BANKNIFTY 18500 CALL @ 145

COST=263

TOTAL RISK  = 6575

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=18763

LOWER BREAK GIVEN POINT=16737

Pay off table:

Covered Call

Aside from purchasing a naked call option, you can also engage in a basic covered call or buy-write strategy. In this strategy, you would purchase the assets outright, and simultaneously write (or sell) a call option on those same assets. Your volume of assets owned should be equivalent to the number of assets underlying the call option. Investors will often use this position when they have a short-term position and a neutral opinion on the assets, and are looking to generate additional profits (through receipt of the call premium), or protect against a potential decline in the underlying asset's value.

WHAT ARE OPTION ? AND TYPES OF OPTION

OPTION

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.

CALLS AND PUTS

The two types of options are calls and puts:

A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.

A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.

Participants in the Options Market

There are four types of participants in options markets depending on the position they take:

·              Buyers of calls

·              Sellers of calls

·              Buyers of puts

·              Sellers of puts

People who buy options are called holders and those who sell options are called writers; furthermore, buyers are said to have long positions, and sellers are said to have short positions.

Why Use Options?

There are two main reasons why an investor would use options: 
Speculation 
speculation as betting on the movement of a security. The advantage of options is that you aren't limited to making a profit only when the market goes up. Because of the versatility of options, you can also make money when the market goes down or even sideways. Speculation is the territory in which the big money is made - and lost. The use of options in this manner is the reason options have the reputation of being risky. This is because when you buy an option, you have to be correct in determining not only the direction of the stock's movement, but also the magnitude and the timing of this movement. To succeed, you must correctly predict whether a stock will go up or down, and you have to be right about how much the price will change as well as the time frame it will take for all this to happen.

Short Butterfly

The short butterfly is a neutral strategy like the long butterfly but bullish on volatility. It is a limited profit, limited risk options trading strategy. There are 3 striking prices involved in a short butterfly spread and it can be constructed using calls or puts. 

SHORT BUTTERFLY CONSTRUCTION

Ø  SELL 1 ITM CALL

Ø  BUY 2 ATM CALLS

Ø  SELL 1 OTM CALL

Short Call Butterfly

Using calls, the short butterfly can be constructed by writing one lower striking in-the-money call, buying two at-the-money calls and writing another higher striking out-of-the-money call, giving the trader a net credit to enter the position.

OPTION PLAIN VANILLA SBIN STRATEGY :UPDATE

BOOK PROFIT IN SBIN 285 CALL  @12.50 CALL WAS GIVEN@4.45  IN  POST
TOTAL INVESTMENT =5562
NET RETURN=15625

BUYING OPTIONS

The most basic of options strategies is to simply buy call or put options. When you buy options, you are said to have a long position in that option. You have a long call position when you buy calls or a long put position if you buy puts.

Generally, when you are bullish on the underlying asset, you can buy call options to implement the long call strategy and when bearish, you buy put options to implement the long put strategy.

In both cases, you hope that the underlying stock price move far enough to cover the premiums paid for the options and land you a profit.

Cost Considerations When Buying Options 
The price you pay to own the option is called the premium which is affected by many factors such as moneyness, time to expiration and underlying volatility.

Moneyness                

Out-of-the-money options are cheaper to buy than in-the-money options but they are also more likely to expire worthless.

For call options, this means that the higher the strike price, the cheaper the option. Similarly, put options with lower strike prices are therefore less expensive to purchase.

However, the size of the premium alone does not tell us the whole story. In fact, at-the-money options can be considered the most expensive even though their premiums are lower than in-the-money options. This is because their time value is highest and time value is the part of the premium that will waste away as the expiration date approaches.

Time to Expiration

Obviously, the longer the time to expiration, the more chance the option buyer have for the underlying price to move in the right direction and therefore the more expensive the option.

Selecting the Right Option to Buy

Which strike price and expiration you choose all depends on your outlook of the underlying. For instance, if you believe that the underlying will make an explosive move upwards very soon, then it makes sense to buy an at-the-money call option expiring in the nearest expiration month.

Buying Options for the Purpose of Hedging

Other than speculation, options can also be bought as a means to insure potential losses for an existing position in the underlying. To hedge a long underlying position, a protective put can be purchased. Similarly, to protect a short underlying position, a protective call strategy can be used.

How to Trade Options – Options Trading Basics

All investors should have a portion of their portfolio set aside for option trades. Not only do options provide great opportunities for leveraged plays; they can also help you earn larger profits with a smaller amount of cash outlay.

What’s more, option strategies can help you hedge your portfolio and limit potential downside risk. No investors should be sitting on the sidelines simply because they don’t understand options. 

What is the difference between Intraday Trading and Delivery Trading?

When you buy and sell a stock within the same day, it is called Intraday Trading. When you purchase shares and hold them overnight, then you take delivery of the shares and hence, this is called Delivery Trading.

You can trade in two different ways in share markets. You can either do intraday trading or you can opt for delivery based trading (investment). Intraday trading is typically completed within a day – this means that you have to sell the shares that you have purchased on that day before the closing of markets. Even if you don’t sell the shares by yourself, they are automatically squared off before the closing. On the other hand, in delivery based investments, you are not required to buy and sell shares within a day and you can hold them for as long as you want.
Advantages

There are quite a few advantages of Intraday Trading, the biggest one being that you are allowed to buy shares without paying the full price of the shares (Paying only the margin money). The market makers allow you pay only a part of the price to hold the shares. So, you can gain more by investing less. But this means that your losses would be higher as well. Intraday trading also allows you to short sell the shares – selling shares even before buying them (but buying before market closes). This is one benefit that can give you profit even when the price of the share is sure to fall. 
The brokerage for intraday trading is always lower than that for delivery trading.