OPTION POSITIONS BY NAGENDRA

BASICS ON OPTIONSOPTION POSITIONS : 

BASICS ON OPTIONSOPTION POSITIONS BY Y.NAGENDRA M.B.A S.V. PG COLLEGE 1 S.V. PG COLLEGE

Basics on Options : 

2 Basics on Options Call – give the holder the right to buy the stock by a certain date for certain price Put – give the holder the right to sell the stock by a certain date for certain price Premium - cost of options (call or put) Strike price - the price at which an option contract gives the holder the right to buy/sell

OPTION POSTIONS : 

OPTION POSTIONS LONG CALL SHORT CALL LONG PUT SHORT PUT 3 S.V. PG COLLEGE

LONG CALL(BUYING CALL OPTION) : 

LONG CALL(BUYING CALL OPTION) Buying a Call means you are very bullish and expect the underlying stock / index to rise in future. Risk: Limited to the Premium. Reward: Unlimited Breakeven: Strike Price +Premium 4 S.V. PG COLLEGE

LONG CALL(BUYING CALL OPTION) : 

LONG CALL(BUYING CALL OPTION) Current stock price: Rs.3500 Strike price:Rs.3700 Option premium:Rs.100 Break even rice: Rs.3800 5 S.V. PG COLLEGE

LONG CALL(BUYING CALL OPTION) : 

LONG CALL(BUYING CALL OPTION) K PROFIT LOSS 3700 ST The payoff chart (Long Call) 6 S.V. PG COLLEGE

SHORT CALL (selling call option) : 

SHORT CALL (selling call option) When an investor is very bearish about a stock/ index and expects the prices to fall, he can sell Call options. This position offers limited profit potential and the possibility of large losses on big advances in underlying prices. Although easy to execute it is a risky strategy since the seller of the Call is exposed to unlimited risk. 7 S.V. PG COLLEGE

SHORT CALL (selling call option) : 

SHORT CALL (selling call option) Current stock price: 2694 Call Option Strike Price (Rs.): 2600 Mr. XYZ receives Premium (Rs.): 150 Break Even Point (Rs.)=(Strike Price +Premium)*:2750 * Breakeven Point is from the point of Call Option Buyer. 8 S.V. PG COLLEGE

SHORT CALL(SELLING CALL OPTION) : 

SHORT CALL(SELLING CALL OPTION) K PROFIT LOSS 2700 ST The payoff chart (Short Call) 9 S.V. PG COLLEGE

LONG PUT(BUYING PUT OPTION) : 

LONG PUT(BUYING PUT OPTION) When an investor is bearish, he can buy a Put option. A Put Option gives the buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby limit his risk. 10 S.V. PG COLLEGE

LONG PUT(BUYING PUT OPTION) : 

LONG PUT(BUYING PUT OPTION) Risk: Limited to the amount of Premium paid. (Maximum loss if stock / index expires at or above the option strike price). Reward: Unlimited Break-even Point: Stock Price - Premium 11 S.V. PG COLLEGE

LONG PUT(BUYING PUT OPTION) : 

LONG PUT(BUYING PUT OPTION) Current stock price:2694 Put Option Strike Price (Rs.) :2600 Mr. XYZ Pays Premium (Rs.): 50 Break Even Point (Rs.):Strike Price - Premium)=2550 12 S.V. PG COLLEGE

LONG PUT(BUYING PUT OPTION) : 

LONG PUT(BUYING PUT OPTION) K PROFIT LOSS 2500 ST The payoff chart (Long Put) 13 S.V. PG COLLEGE

SHORT PUT(selling put option) : 

SHORT PUT(selling put option) An investor Sells Put when he is Bullish about the stock – expects the stock price to rise or stay sideways at the minimum. When you sell a Put, you earn a Premium (from the buyer of the Put). If the stock price increases beyond the strike price, the short put position will make a profit for the seller by the amount of the premium, since the buyer will not exercise the Put option and the Put seller can retain the Premium (which is his maximum profit). 14 S.V. PG COLLEGE

SHORT PUT(selling put option) : 

SHORT PUT(selling put option) But, if the stock price decreases below the strike price, by more than the amount of the premium, the Put seller will lose money. The potential loss being unlimited. Current stock price (Rs.) : 4190 Put Option Strike Price (Rs.) 4100 Mr. XYZ receives Premium (Rs.) 170 Break Even Point (Rs.)=(Strike Price - Premium)*:3930 * Breakeven Point is from the point of Put Option Buyer. 15 S.V. PG COLLEGE

SHORT PUT(SELLING PUT OPTION) : 

SHORT PUT(SELLING PUT OPTION) K PROFIT LOSS 4100 ST The payoff chart (Short Put) 16 S.V. PG COLLEGE

Slide 17: 

S.V. PG COLLEGE 17 THANK Q Ur’s Nag