|
|
(We will use Mr Verma
as an example over
here.)
Lets say we go for
December options.In
Mr Verma's trader
terminal he see's
Satyam December Call
option on 1st DEC
2004.Satyam is quoting
at 410 in cash market
and Mr Verma is bullish
on Satyam as he think's
due to bounce back
in Dollars, Satyam
will move up and so
his target for satyam
in cash market is
440.So what will he
do?? will he buy a
call or a put?
He should and will
buy a CALL.Since his
target is 440 he will
buy a Call of strike
price 440 which is
quoting at Rs6.The
lot size for the option
is 1200, so his cost
goes out to be Rs1200
x Rs6 = Rs7200.
So what did he do?
Since he was bullish
on Satyam, so he bought
1 Lot Satyam DEC OPTION
CALL @ STIKE PRICE
440.
Now when Satyam touches
Rs440 the call touches
Rs16.So he made a
profit of Rs10, Rs10
x 1200 = Rs12,000.
Mr Verma made a profit
of Rs12,000.
He should Sell Satyam
option DEC CALL of
440 at Rs16 and book
his profit.
What
happens if Satyam
corrects? If satyam
corrects and falls
below Rs410 at which
it is quoting, then
the call will also
fall there is full
possibility that
the call might come
down to Rs3 or even
Rs1.50 if the correction
is heavy.In this
case Mr Verma will
loose money.
The
options can also
be kept till the
expiry or settlement
date which also
happens the same
day when futures
expiry occurs, means
on the 3rd week
on Thursday.
(Mr
Verma is a hypothetical
trader, just to
make you understand
our example)
Options
Practical Approach:
How to implement?
>>
Best
of Luck!
From
Bookprofit.com
Team
|
