Day Thursday 24th Dec-09, Market made a V shaped recovery in the second half, I saw nifty trading somewhere around 5150 and my sixth sense said that “it is overvalued” and it should see some corrections. Though I was very skeptical about taking a short position in nifty and was totally clueless about how and what to judge in the market.
I decided to use one more instrument of trading i.e. options “call and put” for the first time, as there was a long week end ahead and only three trading days left for the year closing and contract closure of December, I though that nifty will see some correction in those three trading days.
But as usual; the fate of my financial transaction; the instrument that I sell appreciates and the instrument I bought depreciates, I took a put of 5000 nifty December at certain premium and since then nifty has appreciated by almost 50 points and the premium for the put option has deprecated by 40%. Though this was my first transaction in the options and was purely based on speculation and what is called sixth sense “which seems dosen;t seems to be prudent in my financial decisions”; I was at minimum risk of losing the premium if nifty doesn’t approaches the opted price figure. Still 2 days to go I’m keeping my fingers crossed.
For those who want to understand the technical terms here is a brief description
Option
An option contract gives the buyer the right, but not the obligation to buy/sell an underlying asset at a pre-determined price on or before a specified time. The option buyer acquires a right, while the option seller takes on an obligation. It is the buyer’s prerogative to exercise the acquired right. If and when the right is exercised, the seller has to honour it. The underlying asset for option contracts may be stocks, indices, commodity futures, currency or interest rates
Types of options
Options can be classified as ‘call’ options and ‘put’ options. When you buy a ‘call’ option, on a stock, you acquire a right to buy the stock. And when you buy a ‘put’ option, you acquire a right to sell the stock. You can also sell a ‘call’ option, in which, you will acquire an obligation to deliver the stock. And when you sell a ‘put’ option, you acquire an obligation to buy the stock.
Option premium
Option premium is the consideration paid upfront by the option holder (buyer of the option) to the option writer (seller of the option). The option holder gets the right to buy / sell the underlying
Strike price or the exercise price of the option
The right or obligation to buy or sell the underlying asset is always at a pre-decided price known as the ‘strike price’ or ‘exercise price’, which is linked to the prevailing price of the underlying asset in the cash market.
Technical terms source: www.financialexpress.com
Image source: seekingalpha.com
I decided to use one more instrument of trading i.e. options “call and put” for the first time, as there was a long week end ahead and only three trading days left for the year closing and contract closure of December, I though that nifty will see some correction in those three trading days.
But as usual; the fate of my financial transaction; the instrument that I sell appreciates and the instrument I bought depreciates, I took a put of 5000 nifty December at certain premium and since then nifty has appreciated by almost 50 points and the premium for the put option has deprecated by 40%. Though this was my first transaction in the options and was purely based on speculation and what is called sixth sense “which seems dosen;t seems to be prudent in my financial decisions”; I was at minimum risk of losing the premium if nifty doesn’t approaches the opted price figure. Still 2 days to go I’m keeping my fingers crossed.
For those who want to understand the technical terms here is a brief description
Option
An option contract gives the buyer the right, but not the obligation to buy/sell an underlying asset at a pre-determined price on or before a specified time. The option buyer acquires a right, while the option seller takes on an obligation. It is the buyer’s prerogative to exercise the acquired right. If and when the right is exercised, the seller has to honour it. The underlying asset for option contracts may be stocks, indices, commodity futures, currency or interest rates
Types of options
Options can be classified as ‘call’ options and ‘put’ options. When you buy a ‘call’ option, on a stock, you acquire a right to buy the stock. And when you buy a ‘put’ option, you acquire a right to sell the stock. You can also sell a ‘call’ option, in which, you will acquire an obligation to deliver the stock. And when you sell a ‘put’ option, you acquire an obligation to buy the stock.
Option premium
Option premium is the consideration paid upfront by the option holder (buyer of the option) to the option writer (seller of the option). The option holder gets the right to buy / sell the underlying
Strike price or the exercise price of the option
The right or obligation to buy or sell the underlying asset is always at a pre-decided price known as the ‘strike price’ or ‘exercise price’, which is linked to the prevailing price of the underlying asset in the cash market.
Technical terms source: www.financialexpress.com
Image source: seekingalpha.com
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