Comment on Option Strategy - Zerodha Trader

Nithin Kamath commented on 16 May 2014, 02:08 PM

Phew, you are starting at the very basic. I’d suggest you to read this once, I’d suggest you to read the equity derivative modules on this link.

Coming back to your question,

1. If you feel market is going up

Buy Calls, if the market goes up, premium will ideally go up and you can profit. But there are days when market could go up but calls premium could loose you money when the implied volatility drops, for example today, even though market is up call premiums are down. When you buy calls, profits are unlimited but the risk is limited to the premium you pay.

You can Short puts, when market goes up, put values will come down and hence if you are short puts you can profit. When you short options, the risk is unlimited and profit is limited to the premium you receive when you short the option. Since the risk is unlimited, a margin is blocked in your trading account similar to futures.

2. Similarly if you feel market is going down

Buy Puts
Short Calls

Long calls and short puts, ideally will make you profit when market goes up, but they are completely different in terms of how you make money and similarly with long puts and short calls.

As explained If you want to buy 7500 CE when trading at 200, you need to have 200×50, but if you want to short 7500CE there is a margin required, which you can calculate using our SPAN calculator.

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