Comment on Stop Loss orders - Limit/Market

Nithin Kamath commented on 12 Aug 2013, 02:39 AM

You were right in what you said,

1. If you bought nifty 5600call @50 and if market goes to 5800 this will be minimum @200(5800-5600). Yep at that time you can place a sell call option, you can actually buy it at 50 and sell it anytime you want. Since you are buying options in this case your maximum loss is just the 50 that you are paying.

2. If you are bearish, instead of buying [email protected], you can sell 5600 calls. If the market as you expect comes down, the value of 50 becomes say 30, you can buy this back now to make a profit. Since you are selling/writing, if market goes up you make a loss and this is unlimited, for eg if nifty goes to 6000, you would have made 400 points loss.

3. Yep if you are bullish, you can sell the nifty 5600 put options @ 100, if market goes up, the value of put comes down, you can buy back to make profits. If you are wrong, value goes up and you have to buy back for a loss.

4. If you are bearish, you can just buy nifty 5600 put [email protected] and if market comes down put goes up and you make profits.

Since you are a beginner better stick to only buying options rather than selling which carries unlimited risk. One of the rules of option risk management is to never take more than 10% of your trading account size in a single option buying trade. You can read this article pretty interesting

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