Derivative Prediction

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Holding period One day to One Month.

Trade Prediction/ Position update time: morning 09:00 AM

Reco DateF&O SymbolEntry PriceTarget PriceExpected RetrurnMax Price after Reco.Stop LossPosition
08/07/2021BHEL
,29-Jul-21
,75CE


1.452.9100%1.80.64Closed.
05/05/2021BHEL
,27-May-21
,65CE


0.851.4570%12.000.80Closed, 70% profit.
09/02/2021TATASTEEL
,25-Feb-21
,800CE


9.551770%11.856.5Closed.
21/01/2021ADANIENT
,28-Jan-21,590CE


5.257.8550%5.654.5Closed.
12/01/2021COALINDIA,28-Jan-21,170CE


0.450.7670%1.100.2Closed, 70% profit.
05/01/2021TATASTEEL,28-Jan-21,770CE


7.511.2550%15.46Closed
04/01/2021BHARTIARTL,28-Jan-21,600CE


2.9570%29.952Closed, 70% profit earned.
12/12/2020SAIL31Dec2064CE
1.44300%10.30.8Closed. 42% profit earned.
26/12/2020CADILAHC31Dec20510CE
5.1740%6. 454Closed.

Option Buyer v/s Option Writer

An Option Buyer is someone who buys an option from sellers/ writer. The buyer of an option pays a premium and buys the right of that particular option but is not obliged to writer to exercise the option.

Buyer of an option has limited risk up to the premium paid, and theoretically it can earn unlimited reward if stock/index moves significantly higher (in case of call) and lower (in case of put). The biggest risk is of time decay and drop in volatility. If market remains range bound or near expiry, premium will erode faster due to time decay factor, which will result into negligible profit or may turn into losses.

Options should be bought only when you are confident that stock/index will move significantly either side because if stock/index remains range bound, the premium of both At-The-Money and Out-The-Money options will decrease and become zero till expiry. Advance traders can also buy options if they expect volatility to shoot up.

An Option Writer is someone who sells an option but without holding any long positions, it is like short selling the stock/index. The option writer receives premium and has the obligation to keep the agreement if buyer of an option exercises his rights. Writer of an option has a higher probability of making money compared to an option buyer. Option writers primarily trade on time decay and volatility, while market movement is secondary factor. Following are the two scenarios where option writers can initiate positions:

If he expects stock/index to trade sideways and volatility is expected to go down.

If he expects stock/index to move higher (if a put option) or lower (if a call option).

 Option BuyerOption Writer
RiskBuyer of an option has limited risk (to the extent premium paid)An Option writer has unlimited risk
RewardOption buyer has unlimited profit potentialOption writer has limited profit potential (to the extent premium received)
Reward to risk ratioOption buyer has high reward to risk ratioOption writer has low reward to risk ratio
ProbabilityProbability for option buyer of making money will be 33%Probability for option writer of making money will be 67%
Rights/obligationOption buyer has right but not an obligation to exercise the optionOption writer has obligation but doesn’t have a right to exercise the option
Margin requirementOption buyer pays premium to buy optionsOption writer has to pay margin money, which will be same as futures (as risk is unlimited like futures).
Time DecayTime decay works against an option buyerTime decay works in favour of an option seller
BreakevenBreakeven is the point where option buyer starts to make money.It is the exact same point at which option writer starts to lose money.

Following is the payoff table of Option buyer (Long Put Strategy)

Current Nifty PriceRs 8200
Strike priceRs 8200
Buy PriceRs 60
BEP (strike Price – Premium paid)Rs 8140
Lot size (in units)75
On Expiry Nifty Closes atNet Payoff from Long put option
7800340
7900240
8000140
810040
81400
8200-60
8300-60
8400-60

Following is the payoff table of Option Writer (Short put strategy)

Current Nifty PriceRs 8300
Strike priceRs 8200
Selling PriceRs 80
BEP (strike Price – Premium received)Rs 8120
Lot size (in units)75
On Expiry Nifty Closes atNet Payoff from sell put option
7800-320
7900-220
8000-120
8100-20
82000
830080
840080
850080

Piece of Advice:

Investors, who have a low risk appetite, should stick to basic strategy like option buying, whereas option writing should only be used by sophisticated investors as risk involved in writing of an option is higher compare to reward.

3 thoughts on “Derivative Prediction

  • January 16, 2021 at 8:11 pm
    Permalink

    Net Payoff from sell put option should be 80/- (the premium collected) if nifty close at expiry on 8200, please correct me if not this.

    Reply
  • February 23, 2021 at 5:40 pm
    Permalink

    Hi Sir where is new stock comes

    Reply

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