Comment on Basics on Options Shorting/Writing

Digvijay commented on 10 Jun 2015, 09:08 PM

Thanks Nitin. Kindly confirm if now my understanding is right based on your inputs.

1. You mean if 8700 call has been shorted @2.9 *25 = 72.5 premium pocketed. But if Nifty starts moving higher, let’s say from current strike price of 8100 to 8200 then the premium must have gone up to 5.00 for e.g. Then if I buy back it will be @5.00 *25 = 125 that means a loss of 52.5.

So, 2 situations: (a) Either I have to wait till it gets down (b) I have to wait till expiry if I believe that it 8700 will remain OTM and will become worthless @0.05.

This means I am in profit as long as the premium is <=2.9; as soon as it goes above it even by a rupee because Nifty starts rising then I am in a loss?

2. Would it be then a better choice to trade nifty / banknifty using strangle for shorter dips through bracket order rather than taking risk of option writing?

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