We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- It makes sense to be a buyer of a call option when you expect the underlying price to increase.
- If the underlying price remains flat or goes down, then the call option buyer loses money.
- The money the buyer of the call option would lose is equivalent to the premium (agreement fees) the buyer pays to the seller/writer of the call option.
- The intrinsic value (IV) of a call option is a non-negative number
- IV = Max[0, (spot price ā strike price)]
- The maximum loss the buyer of a call option experiences is to the extent of the premium paid. The loss is experienced as long as the spot price is below the strike price.
- The call option buyer has the potential to make unlimited profits, provided the spot price moves higher than the strike price.
- Though the call option is supposed to make a profit when the spot price moves above the strike price, the call option buyer first needs to recover the premium he has paid.
- The point at which the call option buyer completely recovers the premium he has paid is called the breakeven point.
- The call option buyer truly starts making a profit only beyond the breakeven point (which naturally is above the strike price)
From where we can find the next part of the videos in the modules
It will be uploaded soon.
This is the first series of videos I have watched, and they are invaluable to a brand new entrant to the market! Keep up the good work.
The P&L chart in your example had a negative even beyond the 477.5 spot price for SBI. I assume that was a typo?
Glad you liked it, Kaushik. Yes, that’s a typo, we have put a pinned message on Youtube, will put the same here as well š
What if I didn’t square off my option call and it’s in the money and facing loss at close of expiry , will i just have to pay premium and can get out of situation or I’ll have to bear the loss
Against possible expiry 495……P&L….should be +17.5
sir
CAN YOU MAKE ONE MOULE FOR PRICE ACTION TRADING
Check this – https://www.youtube.com/watch?v=z0Rwoz6PduM&list=PLX2SHiKfualEyD05J9JsklEq1JFGbG6qJ&index=3
Any formula or to calculate the premium amount to paid ? And strike price means the value of the share .
Sorry, dint get your query. Can you elaborate?
In call buy, the premium is already paid during buying the contract, if it is a profit during expiry, why again the premium amount is adjusted in the profit? Are we paying premium amount twice here? kindly explain…
No, you only pay once. Think about it like buying a stock, you pay the price at the time of buying and get a price at the time of selling.
Thank you so much. please clear my doubt – negative 17.5 is for the entire lot of 1500 or only one ?
Per share right? Multiply that with lot size.
I have a served the following
While Call option the margin is very high for sell option and the same for Put Option sell. Request explain. This is with respect to Banknifty future trade. Regards
Buying options require you to pay just the premium. Selling options on the other hand, requires you to pay a margin (like futures), hence the higher cost.
Thanks. Understood after going through your varsity videos
Happy learning š
Query : Loss should no shown 17.5 multiply with lot size , Right ? I believe explanation in video does not depict that clearly.
Feedback :In excel where you are showing example , at 495 strike price it should be +17.5 rather than -17.5 .
Let me check this again, Sushil.
At 6:36 minutes and later, Can the payoff be corrected for 495? This will be profitable for buyer of call option or did i miss something?
Checking this.
clean explanation, looking forward to learn and grow.
Happy learning š
All the material. especially the videos’ are amazing. Thanks Karthik and Prateek for putting together such clear content. You guys are awesome!!!
Happy learning š
Against possible expiry 495ā¦ā¦P&Lā¦.should be +17.5
Hello sir,
Can i hold the “short position” in a CALL option overnight ? Or do i need to square off by the end of the trading day?
Thanka
Yes, you can keep the position overnight, Arvind.
When i have a call long position and its making profit as it has gone above the break even point, so at certain point Iām thinking this is a good profit for me so can exit the trade before expiry with the profit that i have gained at that particular moment?
Yes, you are free to exit the position before expiry Allan. No need to hold the position to expiry.
For the seller, whether the seller needs to own a lot of the stock before selling
No, not required.
Amazing video, understood thouroughly.
Sure, happy learning š
Against possible expiry of SBIN @ spot price of INR 495ā¦ā¦P&Lā¦.should be +17.5….it is mistyped as -17.5
Checking this, thanks.
Hi Karthik,
End of each chapter in varsity has PDF download.
Is it possible to get a zip of all downloads in varsity for print?
Or could we get a printed copy of varsity at cost?
Thanks & regards,
Raj
Printed copy is not possible, Raj. Sorry about that.
Can we say, Strike price is nothing but BEP?
Not really, BEP will be different compared to strike price.
Sir, I think that there is a mistake. You gave an example of how much profit can a option buyer earn at different expiry using a table at 6:24. I think that at expiry 495 p&l will be +17.5. But you wrote -17.5. Is it right or need a correction.
Ah, possible. Thanks for pointing, let me check this š
What happens if the face value splits. How does the call option compensate for the value.
Check this Akhil – https://www.youtube.com/watch?v=MX-6rdHDPbE&list=PLX2SHiKfualEyD05J9JsklEq1JFGbG6qJ&index=8
8:07 – Please correct the profit at price of 495. It should be Rupees +17.5
Checking this, Amit.
Basic Q, if the max profit that the call seller stands to gain is just the premium, why would they be at all interested in the transaction?
It is for the premium š
Not all trades need to have an unlimited upside. Capped but yet visible profits is also desirable.
Yaqoot, Call seller will always be in profitable situation as they get benefit of theta decay, as having lower expectation of moving share price towards up side, After near coming to expiry or maturity of call option ,there could be two scenario , price either not crossed to strike price , definitely Entire Value of call option will be to 0 and all premium amount you paid at the date of contract will be net pay off of Call Seller.
I hope you got understand