1. what is option trading
you will understand very easily what option trading is and how it works. Friends, first of all let me tell you what is the meaning of option trading as it is known from its name.
Option trading is going on, meaning we have an option, what is a promise in it, there is a contract inside it, so if I assume that I have made a promise to you, first let me understand what a promise is. Okay, assume that I have made a promise to you. I am promising that I will bring one for you in Delhi.
Okay, so this is my promise. I promised you that I will bring one for you in Delhi, but whether to fulfill that promise or not is completely up to me. Okay, so if I want to fulfill that promise, whether I fulfill it or not, then this is called an option. I have an option, whether I fulfill that promise or not, then this is called option trading.
Meaning, a promise is made for the future. Now let me explain to you through an example, you will understand it in a very good way, and each and every concept will become clear.
For example, you are a shopkeeper, that means you are a shopkeeper and I am a customer, so who is the shopkeeper?
2. What are option sellers and option buyers?
Have you understood who are option sellers and customers? Option buyers. There are two people in option trading. One is a seller and one is a buyer. Option sellers and option buyers. Okay, obviously if you are selling options, you are a shopkeeper.
If so, then you will have a lot of investment and I am going to buy options. I am an option buyer, so I will have to pay only for one product. Okay, now how much money will I have to pay in the beginning to buy that product, it is called premium. 2000-3000 and for that we pay a premium of 200-300 rupees, that is the same.
Now let me understand how option trading works. Okay, you are a shopkeeper, you have an iPhone, you have many iPhones. Okay, now I will go and talk to you. Am
That brother, if I want to buy an iPhone, then you will send it to me immediately, it is ok but I will say that right now I do not have that much money, if the price of an iPhone is ₹ 100000 and I do not have ₹ 100000 currently, I will buy it next month. I know that next month I will have ₹ 100000.
Okay, so how much I currently have is ₹ 500. I will tell you, brother, keep this ₹ 500 and give me this promise that next month you will give me this iPhone for ₹ 100000.
Now I Why am I making him promise by giving ₹ 500 that you promise me that you will give me this iPhone next month? I am making him promise from the shopkeeper to the seller because I think he will know the price of the iPhone next month.
It will increase from Rs 1 lakh to Rs 1 lakh 20 thousand. What does it mean that if I do not make him promise by giving him Rs 500, then the person in front of me will charge me Rs 1020000 in the next month. This is fine for the iPhone, which currently costs Rs 1 lakh. If it is then seen, I will incur a loss somewhere if I go to buy it next month then it is okay.
I am telling him to keep ₹ 500 and next month give me the iPhone worth ₹ 120,000 for ₹ 100,000 only. Now the shopkeeper who is selling the option, why would he give me this contract? Why would he promise me that I will get a Why would I give you a product worth Rs 20000 for Rs 100000 in the next month? Why would the person in front agree to save us? He is agreeing because of my promise to him.
He is promising because he feels like a shopkeeper. If he thinks that the price of iPhone will reduce from Rs 1 lakh to Rs 80,000 in the next month, then the shopkeeper is also thinking that if he sends the product worth Rs 80,000 for Rs 100,000 next month, then I will not suffer any loss of Rs 20,000, I will definitely get profit, okay? And what am I afraid of that if its price increases to Rs 120000 then I will get it for Rs 100000. Rs 20000 will be saved for me, so both are safe in their respective places and it is right, that means right now both of them are close to each other. What are you promising that whatever may be its price in the next month?
Our deal of ₹ 100,000 has just been fixed. For this, I have given you a premium of ₹ 500, which is an option buyer.
He pays the premium. Option sellers have understood this much. Now let's see what happens next month. Time has passed. Next month has arrived.
Okay, let's say that on 1st of next month we had contacted that on one date we would get this iPhone. Give it for ₹ 100000. Next month's 1st has come. Now see what happens here. If its price becomes ₹ 120000, then I have given him ₹ 500 to promise. Now the person in front is forced to give me that iPhone for ₹ 100000. BHEL will give its price, now it has become 120000 rupees. If you understand, then what benefit will I get, the product of 120000 rupees from option buyers? I got it for ₹ 100000, which means I got a profit of ₹ 20000 and I lost ₹ 500.
So if I withdraw Rs 500 from Rs 20000, I get a net profit of Rs 19500. Only that Rs 500 of mine will be lost. I understood till now the concept is clear, it means I am getting goods worth Rs 80000, I will not go to him, I have this option.
If I want to complete the contract or not, I can take it for ₹ 100000 or not, so if its price increases then I will go to take it for ₹ 100000. I will reach him if its price decreases.
3. What is at the money and out of the money
I will not go to him again. It is okay and I will not go again. The premium of ₹ 500 that I have paid will be lost, so this is what happens in option trading. The premium that we pay is the option bar that gives the premium to the option sellers. The premium sinks in the end.
If its price decreases, like if the price of the iPhone decreases, then my ₹ 500 also sinks, but after sinking ₹ 500, I bought the iPhone from somewhere else for ₹ 80000 and my benefit is How much did it cost? 190. Sorry, I got a saving of Rs. 19500.
If I had bought it from another shop, I hope it would have been clear to you all. Now see, if the price falls for us, the work is done.
So I don't take it to the shopkeeper, does it mean that it is out of the money? For me, it is out of the money for the option buyers, so what is the price of its premium? It is completely zero, that is, I have suffered a loss. Okay.
Now if its price goes into the money, does it mean that its price increases? Okay, the price of the iPhone which was worth Rs 1 lakh becomes Rs 120,000, which means it becomes money. And if I go in the money then I go and I get profit.
I hope you have understood from this what is in the money, at the money and out of the money and at the same time you have got information related to option trading. Your basic news must have become stronger.
ليست هناك تعليقات:
إرسال تعليق