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We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Historical Volatility is measured by the closing prices of the stock/index
- Forecasted Volatility is forecasted by volatility forecasting models
- Implied Volatility represents the market participants’ expectation of volatility
- India VIX represents the implied volatility over the next 30 days period
- Vega measures the rate of change of premium with respect to change in volatility
- All options increase in premium when volatility increases
- The effect of volatility is highest when there are more days left for expiry
Delta 0.5 Gamma -0.5 theta.0.0006 Vega 0.15 totally values consider after buying or selling
You can look at it either when buying or selling, Ajeem.
Is the premium for an option solely driven by option greeks? Does demand and supply also play a role in determining the premium? If so how do they exactly fit into the equation?
Greeks + demand + supply. All these factors matter in pricing an option.
Hi, considering the past years experience, what’s the probability that near union budget IV (Implied Volatility) will shoot up??
By the year, elections are becoming a non-event unless there is an absolute googly by the Fin Minister. That said, there will be some spike in volatility.
Sir I am new to options trading, I didn’t understood that whenever there is a change in premium either due to expiry or volatility change, how does it affects my profit or loss, for eg if I am an option buyer, and there is a change in premium amount after initiating the trade , how will it affect my profit /loss
I’d suggest you read the last chapter in this module, where I’ve discussed this particular topic on P&L.
Like option with stocks as underlying asset .stocks are given at expiry as per contract. Then what is underlying asset given to buyer at that price at expiry
The stocks are debited from a call option seller and credited to the call option buyer. Likewise, stocks are debited from Put option buyer and credited to the put option buyer. Do check our chapter on physical settlement of options.
Like option with stocks as underlying asset .stocks are given at expiry as per contract. Then what is underlying asset given to buyer for index options like nifty at that price at expiry
Reply
SBIN 570ce Lot size is 1500,Reliance 1880ce lot size 250,Tata chemical 1000ce Lot size is 550 sir why different-different stock options are different lot size.
In Nifty index fund there are only one lot size 50 why stock options have different lots sizes.
While lot sizes are different, contract values are similar. Contract value = lot size * Price.
Hi Karthik Sir,
Wishing you a very happy and prosperous New Year!!
I have a small question regarding volatility. How do we determine whether current volatility of any stock or index is high or low?
Do we have to check historical volatility? If yes, then what is the best time duration to determine this?
Wishing you the same, Umang!
Yes, you can check what is historical volatility and compare it with the current volatility to get a sense of how volatile the current market is. You can check tools like the volatility cone for a quick comparison.
Sir bhut confusion ho rah h ki kis stage pe option sell krna h
sir, i wish to buy one lot in cash of sbi nearly cost 12 lakhs at 645 lot 1500. I will sell one lot 655. for January 2024. Explain me the overall risk and benefits.i also want to know m to m requirement considering SBI goes down or up
It depends on the settlement price on expiry. If the strike is ITM, then you will have to give delivery of 1 lot at 655. There is no margin benefit here.
Kartik Sir Thanks for imediate response. What should be done to get a margin benefit? M to M requirement also throw some light
General rule of thumb – hedged postions means lower margins. Naked positions attract more margins.