Friends,
My one other good friend feltra(Raman)as asked me about Options.He says that people says Options are better then future as the loss gets limited.
I agree with that, that the loss is limited on options call and puts...as one has to just cough out premiums and if the call do not click only the premium is lost.
Like say if some one buy a call option of Strelite Ind of say 1100 strike rate of call option at rs 10 premium...if Strelite do not move or go down then the loss would be 10 * lot size = amt , this amt will be lost and that is final.So here the loss is known...and hence it is a good avenue to play...
But in options people forget to look at one thing which I am now going to write.
In Options ,when one buy a Call Option of a perticular lot of a stock with perticular strike rate, there is one who is writing this call..and most probably the writer is an operator and no one else and he is the main person behind what will decide the price or premium of that stocks by the end of the vallan.Now it is clear that if he is writing call options, means selling us,at say 10, then if the premium goes down or remain there , only then he will earn and if the premium will go up he will be the looser.So what he will do, he will try his level best not to let the premium go up where he has written the call.
Now I have observed that upto 15 th on any month the premium will and can go up, but after that even though the stock goes up Premium do not go up so much.There investor get trapped.When people see that stock is going up and premium is low at 15th he buys a call option lot but then a correction comes and the premium gets so low that investor sell the lot thinking it can go even lower.
I have observed that premium almost gets eaten by the writer at the end of the Vallan...there are no buyers as tyhe vallan end comes nearer.If no buyers then your premium is gone..
So if anyone wants tom,play in Options category,he should getin early and get out before 15th .That is the trick.Never buy an option after 15th of any month.I am not saying that onecan't earn but most probably it is eaten up..unless the writer is caught in wrong foot.
feltra,I hope you will like my Options view as well...I have explained everything in detail as much as I can.....
and also hope all readers will be able to understand...
I still say to all of you, though I rarely play F&O , I keep track on all these,what happens when and how it is played.Though I have my Bank Job which takes away my whole day, but still I make it a point and learn from what I read...
Actually,I suggest or say rather Advice to all my readers that ONE SHOULD NEVER NEVER PLAY IN F&O....it is all loosing game be it Future or Options.Small investor should never never play in this sector and that too not even in partnership...
It was realy helpful...
ReplyDeleteshree
Let me add more.
ReplyDelete1. First, about Call/Put options :
They are a pure money looser, unless you have a very sold uptrend news like Rel.Power IPO or SBI rights issue in a particular month.
Like if you bought a REL Jan. call on the last Thursday of dec.07, you would have made a huge profit by now, much more than what you would have got in it's equity, from the same money. But otherwise in other stocks its very risky. All said and done, in Call/Put, YOU LOOSE ALL YOUR MONEY.
2. Next best then is FUTURES they are all but very safe and profitable too. For.ex. if one has 3 Lacs. in cash(or in A group shares)then he can buy a single lot of 550 of REL in, say, Dec.end. But in cash one would have got only around 150 shares of REL.
Now, REL has increased 5OO from Dec. end till now. So, in cash your profit will only be 75,000 whereas,in Futures lot,your profit will be a whopping 2,75,000 !!
And in Call, if you are lucky ONLY THEN first of all you may get the Call lot at a cheaper premium for such a sure short event like REL IPO news. And if you did get it also, you have to sell it by 10th at the most to be in profit otherwise after that premiums fall so fast that you will hardly find a buyer of your call even at your purchase rate.
3. SAFE : Next, case Future rate goes down due to any reason, you can ROLL OVER your Future positions to the next month, by selling the Jan. lot and immediately buying the Feb. lot and so on, until you are in Profit. But in Calls, all you money is GONE on the expiry day.
But Nifty future most of the times. One lot of 50 is just for around 35,000 odd, and you can keep cutting it every 10 Rs. rise intra day. If you can do it even two times a day, you earn 1000 daily, on an investment of 35,000 only. A whopping 3% DAILY !!!
And should you be stuck any month just ROLL OVER your lot to the next month ...
4. The next best Future opportunity is in SBI at the moment. It's rights issue meeting on 14 Jan will trigger the stock to at least around Rs.500 more, till the issue closes. So, buy a Jan. future and enjoy the SURE-SORT profits and you will learn in the process too.
Options are dangerous but Futures are forever safe and cheaper then even stock deliveries.