Options - vidyasekaran/current_learning GitHub Wiki
Excerpts from Udemy - Options Trading Masterclass - Jyoti Bansal
Call option and Put option
In bullish - call option - buyer may lose primium but no obligation to buy, seller obligated to sell but may get premium if price rise. Buyer can let the option expire if he deems it unprofitable.
The seller, on the other hand, is obliged to sell the securities that the buyer desires. In a call option, the losses are limited to the options premium, while the profits can be unlimited.
Call option buyer expect 80 rs share to increase to 100rs but if prices goes down there is no obligation to buy but allow option to lapse. Call option seller expects the price goes down from 80 to 70 and since price goes down he will get profit if price increase he has to sell his option.
In bearish - put option
Put option
premium should be detected from profit
ABC JAN 45 call @ 3
ABC - Underlying Stock
JAN - Expiry month
45 - Strike price (current price in shares is spot price and same in options is strike price)
call - type of option
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Excerpts from Udemy - Options trading for rookies - Kal Zurn
1 side bets Stock price will go up (buyer of call)
1 side bets stock price will go down (seller of call)
Agree on a price (mid price), the option is created
Buyer of call option summary
- Pros
Undefined (unlimited) profit
- Cons
Probablity of profit (POP) is less (=35%) - Lose 65% time
Breakeven Price - Stock price must move in our favor or we lose
time : stock price must move in certain time window or we lose
- Stock Down - Loser
- Stock Unchanged - Loser
- Stock Up small/medium - Loser
- Stock Up Big : Winner
Stock ex : PCLN
Stock price : 1218
Strike Price : 1215 call which is just below current price
We pay : 45.55 for each option
Breakeven : Strick price (1215 + 45.55) = 1263.55
From stock price of 1218 it has to go as high above Breakeven price which is 1263.55 after which only we get profit in before Expiry day which is (34 days)
What factors are against us
Expiry days - 34 Breakeven price - 1263 So due to this our POP chace of profit is 35%
Selling call option
Selling of call option summary
Pros
Probability of Profit (POP) is more - 65% Breakeven Price - Stock price does not move, we win time - stock price does not move in certain time window, we win
- Stock Down - Winner
- Stock Unchanged - Winner
- Stock up small/medium - winner
- Stock up Big - Loser
Cons
"Undefined" (Unlimited) Loss
Stock Down - Loser Stock Unchanged - Loser Stock Up small/medium - Loser Stock Up Big : Winner Stock ex : PCLN
Stock price : 1218
Strike Price : 1215 call which is just below current price
We pay : 45.55 for each option
Breakeven : Strick price (1215 + 45.55) = 1263.55
From stock price of 1218 it has to go below Breakeven price which is 1263.55 after which only we get profit before Expiry day which is (34 days)
What factors are against us
Undefined Loss if price goes below breakeven price