Buying A Call Option

8/11/2019 Buying a Call Option – Varsity by Zerodha
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Module 5 — Options Theory for Professional Trading
Chapter 3
Buying a Call Option

659
3.1 – Buying call option

In the previous chapters we looked at the basic structure of a call option and understood the broad context under which it
makes sense to buy a call option. In this chapter, we will formally structure our thoughts on the call option and get a firm
understanding on both buying and selling of the call option. Before we move ahead any further in this chapter, here is a
quick recap of what we learnt in the first chapter –
1. It makes sense to be a buyer of a call option when you expect the underlying price to increase
2. If the underlying price remains flat or goes down then the buyer of the call option loses money
3. The money the buyer of the call option would lose is equivalent to the premium (agreement fees) the buyer pays to
the seller/writer of the call option
We will keep the above three points in perspective (which serves as basic guidelines) and understand the call option to a
greater extent.
3.2 – Building a case for a call option

There are many situations in the market that warrants the purchase of a call option. Here is one that I just discovered while
writing this chapter, thought the example would fit well in the context of our discussions. Have a look at the chart below –
https://zerodha.com/varsity/chapter/buying-a-call-option/ 1/112
The stock in consideration is Bajaj Auto Limited. As you may know, they are one of the biggest manufacturers of two
wheelers in India. For various reasons the stock has been beaten down in the market, so much so that the stock is trading at
its 52 week low price. I believe there could be an opportunity to initiate a trade here. Here are my thoughts with respect to
this trade –
1. Bajaj Auto is a quality fundamental stock, there is no denying this.

2. The stock has been beaten down so heavily, makes me believe this could be the market’s over reaction to volatility in
Bajaj Auto’s business cycle.
3. I expect the stock price to stop falling sometime soon and eventually rise.
4. However I do not want to buy the stock for delivery (yet) as I’m worried about a further decline of the stock.
5. Extending the above point, the worry of M2M losses prevents me from buying Bajaj Auto’s futures as well.
6. At the same time I don’t want to miss an opportunity of a sharp reversal in the stock price.
To sum up, I’m optimistic on the stock price of Bajaj Auto (the stock price to eventually increase) but I’m kind of uncertain
about the immediate outlook on the stock. The uncertainty is mainly due the fact that my losses in the short term could be
intense if the weakness in the stock persists. However as per my estimate the probability of the loss is low, but nevertheless
the probability still exists. So what should I do?
Now, if you realize I’m in a similar dilemma that was Ajay was in (recall the Ajay – Venu example from chapter 1). A
circumstance such as this, builds up for a classic case of an options trade.
In the context of my dilemma, clearly buying a call option on Bajaj Auto makes sense for reasons I will explain shortly.
Here is a snapshot of Bajaj Auto’s option chain –
As we can see the stock is trading at Rs.2026.9 (highlighted in blue). I will choose to buy 2050 strike call option by paying
a premium of Rs.6.35/- (highlighted in red box and red arrow). You may be wondering on what basis I choose the 2050
strike price when in fact there are so many different strike prices available (highlighted in green)?. Well, the process of
strike price selection is a vast topic on its own, we will eventually get there in this module, but for now let us just believe
2050 is the right strike price to trade.
3.3 – Intrinsic value of a call option (upon expiry)

So what happens to the call option now considering the expiry is 15 days away? Well, broadly speaking there are three
possible scenarios which I suppose you are familiar with by now –
Scenario 1 – The stock price goes above the strike price, say 2080
Scenario 2 – The stock price goes below the strike price, say 2030
Scenario 3 – The stock price stays at 2050
The above 3 scenarios are very similar to the ones we had looked at in chapter 1, hence I will also assume that you are
familiar with the P&L calculation at the specific value of the spot in the given scenarios above (if not, I would suggest you
read through Chapter 1 again).
The idea I’m interested in exploring now is this –
1. You will agree there are only 3 broad scenarios under which the price movement of Bajaj Auto can be classified
(upon expiry) i.e. the price either increases, decreases, or stays flat
2. But what about all the different prices in between? For example if as per Scenario 1 the price is considered to be at
2080 which is above the strike of 2050. What about other strike prices such as 2055, 2060, 2065, 2070 etc? Can we
generalize anything here with respect to the P&L?
3. In scenario 2, the price is considered to be at 2030 which is below the strike of 2050. What about other strike prices
such as 2045, 2040, 2035 etc? Can we generalize anything here with respect to the P&L?
What would happen to the P&L at various possible prices of spot (upon expiry) – I would like to call these points as the
“Possible values of the spot on expiry” and sort of generalize the P&L understanding of the call option.
In order to do this, I would like to first talk about (in part and not the full concept) the idea of the ‘intrinsic value of the
option upon expiry’.
The intrinsic value (IV) of the option upon expiry (specifically a call option for now) is defined as the non – negative
value which the option buyer is entitled to if he were to exercise the call option. In simple words ask yourself (assuming
you are the buyer of a call option) how much money you would receive upon expiry, if the call option you hold is
profitable. Mathematically it is defined as –
IV = Spot Price – Strike Price
So if Bajaj Auto on the day of expiry is trading at 2068 (in the spot market) the 2050 Call option’s intrinsic value would be
–
= 2068 – 2050
= 18
Likewise, if Bajaj Auto is trading at 2025 on the expiry day the intrinsic value of the option would be –
= 2025 – 2050
= -25
But remember, IV of an option (irrespective of a call or put) is a non negative number; hence we leave the IV at 2025
=0
Now our objective is to keep the idea of intrinsic value of the option in perspective, and to identify how much money I will
make at every possible expiry value of Bajaj Auto and in the process make some generalizations on the call option buyer’s
P&L.
3.4 – Generalizing the P&L for a call option buyer

Now keeping the concept of intrinsic value of an option at the back of our mind, let us work towards building a table which
would help us identify how much money, I as the buyer of Bajaj Auto’s 2050 call option would make under the various
possible spot value changes of Bajaj Auto (in spot market) on expiry. Do remember the premium paid for this option is Rs
6.35/–. Irrespective of how the spot value changes, the fact that I have paid Rs.6.35/- remains unchanged. This is the cost
that I have incurred in order to buy the 2050 Call Option. Let us keep this in perspective and work out the P&L table –
Please note – the negative sign before the premium paid represents a cash out flow from my trading account.
Serial No. Possible values of spot Premium Paid Intrinsic Value (IV) P&L (IV + Premium)
01 1990 (-) 6.35 1990 – 2050 = 0 = 0 + (– 6.35) = – 6.35
02 2000 (-) 6.35 2000 – 2050 = 0 = 0 + (– 6.35) = – 6.35
03 2010 (-) 6.35 2010 – 2050 = 0 = 0 + (– 6.35) = – 6.35
04 2020 (-) 6.35 2020 – 2050 = 0 = 0 + (– 6.35) = – 6.35
05 2030 (-) 6.35 2030 – 2050 = 0 = 0 + (– 6.35) = – 6.35
06 2040 (-) 6.35 2040 – 2050 = 0 = 0 + (– 6.35) = – 6.35
07 2050 (-) 6.35 2050 – 2050 = 0 = 0 + (– 6.35) = – 6.35
08 2060 (-) 6.35 2060 – 2050 = 10 = 10 +(-6.35) = + 3.65
09 2070 (-) 6.35 2070 – 2050 = 20 = 20 +(-6.35) = + 13.65
10 2080 (-) 6.35 2080 – 2050 = 30 = 30 +(-6.35) = + 23.65
11 2090 (-) 6.35 2090 – 2050 = 40 = 40 +(-6.35) = + 33.65
12 2100 (-) 6.35 2100 – 2050 = 50 = 50 +(-6.35) = + 43.65
So what do you observe? The table above throws out 2 strong observations –
1. Even if the price of Bajaj Auto goes down (below the strike price of 2050), the maximum loss seems to be just
Rs.6.35/-
a. Generalization 1 – For a call option buyer a loss occurs when the spot price moves below the strike price.
However the loss to the call option buyer is restricted to the extent of the premium he has paid
2. The profit from this call option seems to increase exponentially as and when Bajaj Auto starts to move above the
strike price of 2050
a. Generalization 2 – The call option becomes profitable as and when the spot price moves over and above the
strike price. The higher the spot price goes from the strike price, the higher the profit.
3. From the above 2 generalizations it is fair for us to say that the buyer of the call option has a limited risk and a
potential to make an unlimited profit.
Here is a general formula that tells you the Call option P&L for a given spot price –
P&L = Max [0, (Spot Price – Strike Price)] – Premium Paid
Going by the above formula, let’s evaluate the P&L for a few possible spot values on expiry –
1. 2023
2. 2072
3. 2055
The solution is as follows –
@2023
= Max [0, (2023 – 2050)] – 6.35
= Max [0, (-27)] – 6.35
= 0 – 6.35
= – 6.35
The answer is in line with Generalization 1 (loss restricted to the extent of premium paid).
@2072
= Max [0, (2072 – 2050)] – 6.35
= Max [0, (+22)] – 6.35
= 22 – 6.35
= +15.65
The answer is in line with Generalization 2 (Call option gets profitable as and when the spot price moves over and above
the strike price).
@2055
= Max [0, (2055 – 2050)] – 6.35
= Max [0, (+5)] – 6.35
= 5 – 6.35
= -1.35
So, here is a tricky situation, the result what we obtained here is against the 2nd generalization. Despite the spot price being
above the strike price, the trade is resulting in a loss! Why is this so? Also if you observe the loss is much lesser than the
maximum loss of Rs.6.35/-, it is in fact just Rs.1.35/-. To understand why this is happening we should diligently inspect the
P&L behavior around the spot value which is slightly above the strike price (2050 in this case).
Serial No. Possible values of spot Premium Paid Intrinsic Value (IV) P&L (IV + Premium)
01 2050 (-) 6.35 2050 – 2050 = 0 = 0 + (– 6.35) = – 6.35
02 2051 (-) 6.35 2051 – 2050 = 1 = 1 + (– 6.35) = – 5.35
03 2052 (-) 6.35 2052 – 2050 = 2 = 2 + (– 6.35) = – 4.35
04 2053 (-) 6.35 2053 – 2050 = 3 = 3 + (– 6.35) = – 3.35
05 2054 (-) 6.35 2054 – 2050 = 4 = 4 + (– 6.35) = – 2.35
06 2055 (-) 6.35 2055 – 2050 = 5 = 5 + (– 6.35) = – 1.35
07 2056 (-) 6.35 2056 – 2050 = 6 = 6 + (– 6.35) = – 0.35
08 2057 (-) 6.35 2057 – 2050 = 7 = 7 +(- 6.35) = + 0.65
09 2058 (-) 6.35 2058 – 2050 = 8 = 8 +(- 6.35) = + 1.65
10 2059 (-) 6.35 2059 – 2050 = 9 = 9 +(- 6.35) = + 2.65
As you notice from the table above, the buyer suffers a maximum loss (Rs. 6.35 in this case) till the spot price is equal to
the strike price. However, when the spot price starts to move above the strike price, the loss starts to minimize. The losses
keep getting minimized till a point where the trade neither results in a profit or a loss. This is called the breakeven point.
The formula to identify the breakeven point for any call option is –
B.E = Strike Price + Premium Paid
For the Bajaj Auto example, the ‘Break Even’ point is –
= 2050 + 6.35
= 2056.35
In fact let us find out find out the P&L at the breakeven point
= Max [0, (2056.35 – 2050)] – 6.35
= Max [0, (+6.35)] – 6.35
= +6.35 – 6.35
=0
As you can see, at the breakeven point we neither make money nor lose money. In other words, if the call option has to be
profitable it not only has to move above the strike price but it has to move above the breakeven point.
3.5 – Call option buyer’s payoff

So far we have understood a few very important features with respect to a call option buyer’s payoff; I will reiterate the
same –
1. The maximum loss the buyer of a call option experiences is, to the extent of the premium paid. The buyer
experiences a loss as long as the spot price is below the strike price
2. The call option buyer has the potential to realize unlimited profits provided the spot price moves higher than the
strike price
3. Though the call option is supposed to make a profit when the spot price moves above the strike price, the call option
buyer first needs to recover the premium he has paid
4. The point at which the call option buyer completely recovers the premium he has paid is called the breakeven point
5. The call option buyer truly starts making a profit only beyond the breakeven point (which naturally is above the
strike price)
Interestingly, all these points can be visualized if we plot the chart of the P&L. Here is the P&L chart of Bajaj Auto’s Call
Option trade –
From the chart above you can notice the following points which are in line with the discussion we have just had –
1. The loss is restricted to Rs.6.35/- as long as the spot price is trading at any price below the strike of 2050
2. From 2050 to 2056.35 (breakeven price) we can see the losses getting minimized
3. At 2056.35 we can see that there is neither a profit nor a loss
4. Above 2056.35 the call option starts making money. In fact the slope of the P&L line clearly indicates that the profits
start increasing exponentially as and when the spot value moves away from the strike
Again, from the graph one thing is very evident – A call option buyer has a limited risk but unlimited profit potential. And
with this I hope you are now clear with the call option from the buyer’s perspective. In the next chapter we will look into
the Call Option from the seller’s perspective.
Key takeaways from this chapter

1. It makes sense to be a buyer of a call option when you expect the underlying price to increase
2. If the underlying price remains flat or goes down then the buyer of the call option loses money
3. The money the buyer of the call option would lose is equivalent to the premium (agreement fees) the buyer pays to
the seller/writer of the call option
4. Intrinsic value (IV) of a call option is a non negative number
5. IV = Max[0, (spot price – strike price)]
6. The maximum loss the buyer of a call option experiences is to the extent of the premium paid. The loss is
experienced as long as the spot price is below the strike price
7. The call option buyer has the potential to make unlimited profits provided the spot price moves higher than the strike
price
8. Though the call option is supposed to make a profit when the spot price moves above the strike price, the call option
buyer first needs to recover the premium he has paid
9. The point at which the call option buyer completely recovers the premium he has paid is called the breakeven point
10. The call option buyer truly starts making a profit only beyond the breakeven point (which naturally is above the
strike price).
Module 5
Chapters
1. Call Option Basics

2. Basic Option Jargons
3. Buying a Call Option
4. Selling/Writing a Call Option
5. The Put Option Buying
6. The Put Option selling
7. Summarizing Call & Put Options
8. Moneyness of an Option Contract
9. The Option Greeks (Delta) Part 1
10. Delta (Part 2)
11. Delta (Part 3)
12. Gamma (Part 1)
13. Gamma (Part 2)
14. Theta
15. Volatility Basics
16. Volatility Calculation (Historical)
17. Volatility & Normal Distribution
18. Volatility Applications
19. Vega
20. Greek Interactions
21. Greek Calculator
22. Re-introducing Call & Put Options
23. Case studies – wrapping it all up!
659 comments
1. ameheta says:
March 27, 2015 at 5:59 am
Dear sir,
Can you explain how the premium of call options got diluted while nearing the expiry ? Is there ant formula ?
Reply
Karthik Rangappa says:

March 28, 2015 at 11:53 am
Time decay besides other factors. We will talk about all of these things eventually in this module. Request you
to stay tuned.
Reply
Prakash says:
October 27, 2016 at 4:42 pm
Hi I wanted to know if we buy 8600 PE at 15 ,75 quantity is the minimum required so how much I have
to pay to get those shares and what ij case if it goes down to 5 rupees what will be the total loss .. can u
pls reply on this as it will be really helpful
Reply

October 28, 2016 at 11:43 am
You will have to pay 15 * 75 = 1125. If it goes to 5, then the value will be 5*75 = 375 and your
loss will be 750.
Reply
Pradeep says:
August 9, 2017 at 8:20 am
Sir,I bought ACC AUG 1840 CE 1 LOT(400) @ 33 Rps and now would lkie to sell @ 40
today so please help me,what will be my profit and will I lose all my 13200 if I sell today as
ACC CMP is 1816 now?

August 9, 2017 at 10:53 am
You will make a profit of 7 per unit. Since lot size is 400, your total loss would be 400*7 =
2800
Vikash says:
Hi,
Just observed 1 point above so the same is posting below:-
Question by one of the member – Sir,I bought ACC AUG 1840 CE 1 LOT(400) @ 33 Rps
and now would lkie to sell @ 40 today so please help me,what will be my profit and will I
lose all my 13200 if I sell today as ACC CMP is 1816 now?
My view – I think he will make profit of 7*400=2800 if sell before expiry.

Remarks – excluding question regarding ACC CMP 1816.

October 28, 2017 at 12:09 pm
Yup, he basically makes the difference between the premium he paid and will receive,
multiply that with lot size. So 40-33 = 7 and 7*400 = 2800.
Ivan says:
January 11, 2018 at 10:44 pm
Hi Karthik
With regards to the earlier query from another member, please could you assist on my
query.
Sir,I bought ACC AUG 1840 CE 1 LOT(400) @ 33 Rps and now would lkie to sell @ 40
today so please help me,what will be my profit and will I lose all my 13200 if I sell today as
ACC CMP is 1816 now?
1. Is is possible for the premium to increase to 40 when the underlying value comes down to
1816?
2. Should i look out for the increase in premium to consider that i will be in profit or should
look out for the underlying value as well?
3. Wouldn’t the total loss be 13200 as the underlying value is below the strike price?
Thank you in advance

January 12, 2018 at 11:42 am
You bought the option at 33 and selling the same at 40, which means your profit will be
Rs.7, multipled by 400 which is 2800. When you sell the option, you will get 40*400 =
16000, which includes the premium and the profit.
1) Yes, for this to happen the volatility should also increase. This is explained later in the
module
2) If it is a short-term trade, focus on the premium
3) No.
manuski says:
December 7, 2016 at 11:42 am
I knew that CE and PE are to be bought, never sold for huge risk of loss is involved. So forget selling
options altogether. If my view is price will go up, I have to buy CE and if my view is price will go down
I have buy PE. Be it PE or CE, I have to buy of the strike price which is at the near by value of CMP.
Expiry of current month options is always on the last Thursday that month. My questions are ” 1-Can I
first buy and then sell PE or CE from last Friday of current to last Thursday of next month at any time in
the live market hours?”
2- ” I bought CE on last Friday of current month. Lot 75. Premium 150. I paid 11250. Mon, Tue, Wed.
On Wed Premium is 250 on live chart of my that CE. Can I sell or not? If yes is my profit= 75(250-
150)=75*100=7500 ( including brokerage+ charges)?
3- If I have to day trading of options (only first buy then sell of PE and CE) I need lot size * current
premium as capital. For buy today and sell on any day any time before expiry, do I need same capital to
buy now? Means lot size * current premium of that option?
Reply

1) Yes, you can.
2) Yes, you can. Yes, you make 100 in profit
3) Yes, it is the same. No additional margins for buying options. Check this –
http://zerodha.com/z-connect/tradezerodha/margin-requirements/zerodha-margin-policies
Reply
anyket says:
September 16, 2017 at 9:12 pm
Dear Sir,
If i am able to sell my option before expiry then what do you mean when you say ,” Here is
an important point to note – you can exercise the option only on the day of the expiry and
not anytime before the expiry.”

September 17, 2017 at 8:26 am
Exercising an option is only on the day of expiry. However, you can buy and sell the
premium at any time frequency.
Hits says:
November 6, 2018 at 5:54 pm
As you are saying “Exercising an option is only on the day of expiry. However, you can buy
and sell the premium at any time frequency”….. that means we may not get profit sometime
when even price of the stock increased but its premium price not…before expiry…!!!!

November 7, 2018 at 11:45 am
Think of the premium in terms of buying and selling a stock. You make a profit as long as
you buy at a lower price and sell at a higher price.
Avinash says:
March 19, 2019 at 12:07 pm
EX: A Bajaj AUTO option Contract lot of 500 CE strike price 2950 bought on on 15 march
at premium 45, expiring on 28 march now premium got increased to 52 and spot price is
2951. If i sell my premium at 52 i will make of 7 rupees on premium and do i have anything
to do with spot price at the time of selling my premium and also at the time of expiry date.
If spot price increases to 3000 do i incur into any losses.

March 20, 2019 at 11:00 am
No, you just have to sell it and pocket the premium of 52. Your profit will be 45-52 = 7.
dee says:
March 14, 2019 at 4:19 am
how do i put stop loss i have brought options in normal orderand its in profit but i want to trail stop loss
so i dont lose profit in case market turns so how do i put stop loss in this scenario
2) howdo i put stop loss after i have brought options
ty
Reply

March 14, 2019 at 11:48 am
You can do this by placing a regular stop loss and then you can keep modifying the limit price as
and when the premium goes higher.
Reply
2. khashu2010 says:
March 27, 2015 at 7:05 am
Hi Karthik, Do we have facility in PI to see payoff charts since it’s required when we play on option strategies
(straddle,strangle etc.) ?
Thanks,
Ashish
Reply

March 28, 2015 at 11:54 am
No, I dont think so, but we are exploring an idea similar to what you have mentioned.
Reply
3. kieron says:
March 28, 2015 at 7:44 pm
How to calculate break even point in real market

Which price take as strike price day starting share price or close price
And which premium price I take month starting or take everyday different premium prices
Plz explain it with real market example
Reply

March 30, 2015 at 5:49 am
Breakeven point is = Strike + Premium paid. It is the same in theoretical and practical world.As I have
mentioned in the chapter, selecting the strike price requires some amount of background knowledge on options
theory, towards the end of this module you will get a fair understanding on the same.
Reply
4. T RAMA DEVI says:

March 30, 2015 at 6:04 am
Sir, Toaday I bought 8600CE at 75/- Pr. and sold at 85/- with a profit of 10/-per lot. Iam unable to understand, as per
formula Break even pt. Strike price + Pr.( 8600+75) indicates nifty should trade above 8675 to be in profit. but I have
already got 10/- profit per lot even though nifty not even crossed 8500. Pl. explain. Thanks
Regards
Reply
Suren says:
I too had a same question similar to Rama Devi. Can you please explain ?
Reply

Rama / Suren – The break even point is applicable only if you hold the option till expiry. It is not
applicable during the series.
Reply
Yella Reddy Mopuri says:

May 19, 2016 at 6:29 am
Hi rama,
You said you made a profit of Rs 10 per lot. so here if you have bought one lot what is your total profit ?. Is it
10 rupees or 75*10 = 750 rupees (taking lot size of nifty is 75).
Reply

May 19, 2016 at 5:58 pm
Answering on behalf of Rama – yes, it would be 75*10 = 750.
Reply
5. TSS KISHORE says:

March 30, 2015 at 9:56 am
Dear Sir,
Appreciated for your efforts in teaching for novice traders/investors, I have a doubt; As stated in the above chapter,
on 26.03.15 Bajaj Auto 2050CE is at Rs.6.35/- while stock is trading at 2026.90 , today at 3.15pm stock trading at
2025.10 but 2050CE trading at Rs.50/- i.e a profit of Rs. 43.65 per lot. Hence, what is the role of breakeven point, as
per rule buyer of 2050 CE option would be in profit only when stock price trades above 2050+6.35= 2056.35. Pl.
clarify. Regards
Reply
TSS KISHORE says:

March 30, 2015 at 10:10 am
Dear Sir, On my above query, I have noted that expiry dates differs, still my question remains same, if we take
todays Nifty 8600 CE of April is low 72.50 and at 3.20Pm is Rs. 114.90. If I bought the same CE option when
it is at a premium of 80/- and closed at 110/- for a profit of 30/- per lot at the same time Nifty is trading at 8492
Spot. Please clarify.
Reply

March 31, 2015 at 4:09 am
As I mentioned, during the series, the profitability depends on many other factors. We will get to that as
we progress through this module. Request you to stay tuned
Reply

March 31, 2015 at 4:08 am
Two things Kishore –
1) As you have noted it correctly (in your next message) you are looking at two different expiry series. Hence
the huge difference.
2) The break-even point we are discussing in this chapter is ‘Upon Expiry‘. During the series besides the
breakeven point there are other important factors that will determine the profitability of the trade. More on
these factors when we take up option geeks.
Reply
6. NARSIMHA says:
March 31, 2015 at 11:34 am
sir,as they say to become ELITE TRADER
Reply
7. NARSIMHA says:
March 31, 2015 at 11:40 am
sir,as they say to become ELITE TRADER we should not watch TV&GET CONFUSED is it true,if it is how come
we know why mkts r falling&rising r we should MUTE & watch clarify
Reply

April 1, 2015 at 2:57 am
Elite Trader is a fancy word used to refer to someone who employs complex trading strategies. However, any
trader who is consistently profitable is an Elite Trader…you can achieve this by watching TV or by completely
avoiding it. It is all in your mind and depends on your market discipline.
Reply
NARSIMHA says:
April 1, 2015 at 5:51 am
t-u work smartly to achieve
Reply

April 2, 2015 at 3:40 am
Sorry, dint quite get that!
Reply
Narasimha says:
April 2, 2015 at 7:46 am
Sir it was thank u

April 3, 2015 at 6:40 am
8. keshav says:
April 2, 2015 at 9:40 am
Sir, is this bullish engulfing?
Reply

April 3, 2015 at 6:45 am
Yes, this is a great example of a bullish engulfing pattern.
Reply
9. keshav says:
April 3, 2015 at 7:26 am
Thank u sir.,
Reply

April 6, 2015 at 5:16 am
Sir, Waiting for other chapters, when will be uploaded. Regards
Reply

April 6, 2015 at 6:58 am
We will upload at least 2 more chapters this week. Thanks for your patience.
Reply

April 7, 2015 at 5:05 pm
T RAMA DEVI
April 7, 2015 at 7:33 am

Sir,
In Technical Analysis module Chapter 10 clause 10.4, Iam unable to understand this rule “As a rule of thumb, higher
the number of days involved in a pattern the better it is to initiate the trade on the same day`. Is it to enter on day 3 i.e
P3.
Thanks
Reply

April 8, 2015 at 3:25 am
I had posted this answer earlier – re-posting the same again, also request you to keep the comments under the
relevant chapters so that we can keep it well organised.
It means, for example – a bullish engulfing pattern (2 day pattern) is more dependable than a hammer (1 day
pattern) and a morning start (3 day pattern) is more dependable than a bullish engulfing (2 day pattern). So
higher the number of days in a pattern the higher the conviction to trade. Please note this is just mu personal
observation while trading.
Reply
12. Kaushik says:

April 13, 2015 at 3:20 am
Let’s say, i buy tata steel call option of Rs350 April series @ premium of 10 Rs & I sell tata steel call option of 370
April series @ premium of 10 Rs.
For me it looks win win for me. I get premium squared. If it goes above 370 my profit is locked to 20 Rs. If it goes to
330, the 370 buyer will not exercise option of buying. So will I for 340 option. For intermediate price e.g. 360, I get
10 Rs.
Is my understanding correct?What will be the other risks on this trade?
What will happen if these contracts are not squared before expiry? Also what are ways for a buyer to exit contract or
what will buyer has to do so that his option of not buying is executed if the price goes in opposite direction of call?
Reply
KAUSHIK says:
April 13, 2015 at 4:12 am
Btw, the premiums I mentioned are hypothetical. Though there could be some cost covering when I sell & buy
option of different cost in same series. For example The CE 350 is @ 9.25 & CE #370 is @ 3.3 so effectively
my risk is only for 5.95 *500 = ~ 3000. But I am not sure about all risks involved in this trade. How a buyer
can decide whether to execute his option & how will he do it?
Reply

April 13, 2015 at 6:17 am
There are many things involved here kaushik – however I’m really glad you are able to think in terms of
an option strategy. Request you to please stay tuned…we will discuss all this and more shortly.
Reply

April 13, 2015 at 6:13 am
Kaushik – if 350 Call option is trading at Rs.10, then there is no way 370 Call option will also trade at Rs.10.
This is because of many factors involved in option pricing….we will soon discuss option pricing in this
module. Also, the strategy that you are talking about is called the ‘Bull Call Spread’…again we will discuss
this stratergy along with many others in the next module i.e ‘Option Strategies’.
You can buy a call option now and sell it within few minutes if you wish…so exciting an option is not a
problem provided a counterparty is available.
Reply
13. KAUSHIK says:

April 20, 2015 at 5:30 am
If I buy some call option @ 5 RS & hold it till expiry. Lets say @ expiry the value is 2 Rs. or 8 Rs. Will I get that
money?
Reply

April 20, 2015 at 2:14 pm
Yes sir, you will!
Reply
14. Aarti Sareen says:

May 11, 2015 at 10:39 am
Sir, how to select a strike price? e.g on 1st May,15 I decide to buy a call option of June 26,15 and the option is open
then do it make sense to buy a call option of second month and also please suggest the criterion to select a strike
price. How much difference of strike price to the spot price is safe?
Reply

May 12, 2015 at 5:49 am
Aarti – Selecting the right strike to trade is a huge task and a very critical task. We will take it up in this
module shortly. Please stay tuned till then
Reply
15. Vicky says:

June 2, 2015 at 3:43 pm
“The profit from this call option seems to increase exponentially.”

Shouldn’t this be linear?
Reply

June 3, 2015 at 5:44 am
If options are linear then the gains and losses should be equal. However this is not the case when you buy an
options. When you buy the loss is restricted to the extent of premium paid and gains can be unlimited. Hence
one tends to say that there is a scope for exponential gains. I agree mathematically ‘exponential’ may not be
the right word to use – but its just to drive the point across.
Reply
shahofblah says:
I think in the interest of precision and correctness you should not use the word exponential, simply for
the fact that derivatives do exist whose values vary exponentially relative to the value of the
underlying(perhaps we’ll see these and stuff like CDOs in a future module?) therefore it’s ambiguous.
Also you mentioned limited liability but unlimited potential profit – same applies in direct equity, too.
Reply

Alright, Sir. Noted.
Reply
16. Yadunandan Batchu says:

July 22, 2015 at 4:50 pm
The line that claims the exponential increase in profit when the spot price moves higher is clearly misleading. The
profit actually increase in a linear fashion rather than in exponential form. Please rectify.
Reply

July 23, 2015 at 5:53 am
Options are non linear instruments Batchu. Futures are linear – meaning for every 1 point move in the
underlying your P&L reacts by 1 point.
Reply
shahofblah says:
It’s ‘linear’ even if the value of the derivative changes by k points for every 1 point change in the
underlying.
Reply
17. the_fool_on_the_hill says:

July 22, 2015 at 6:46 pm
If I buy a call option at say Rs. 10, can I set a stoploss higher than 10, as in say Rs. 20, so that whenever the option
premium reaches double its value, the trigger is activated and the option premium is sold? What happens when I set a
stoploss of a call buying option higher than the buying price in Pi?
Reply

July 23, 2015 at 5:55 am
You can create a limit order and keep it pending in the system. Suggest you email
sreenivasulu.m@zerodha.com to figure out how to get this done on Pi.
Reply
18. Sunil says:

July 23, 2015 at 2:44 pm
Hello Karthik,
July Contract for Nifty at Strike Price 8600 trading at Premium of Rs.64/-
With a bullish perspective, I can buy a CE of the above contract of say 4 lots, thereby 64*100=6400 will be my F&O
obligation amount which will be debited from my A/c at EOD.
But can I also short it for intraday trading just like we do for Nifty Futures and also hold the short position for a few
days?? And if I can short the above contract at the above price, will I become a Seller of the Option Contract and get
64*100=6400 credited to my account or will I still have the same F&O obligation and 64*100=6400 will be debited
from my account at EOD ?? If it is possible to short the above contract, will it be better to buy a PE instead of
shorting a CE?? I am confused. Please help.
Regards,
Sunil.
Reply

July 24, 2015 at 6:20 am
On one hand you buy the position and on the other hand if you sell it….it leaves you with a net obligation of 0,
meaning you do not have an exposure to the instrument. So you cannot do this. If your view point is this –
Nifty will cross 8600 by expiry but over the next few days it will correct before crossing the 8600 then in my
opinion you are better of buying calls and shorting futures.
Reply
19. Sunil says:

July 28, 2015 at 9:57 am
hello karthik,
my apologies for confusing u. I didn’t mean to buy and sell the same option. That obviously would nullify
everything. What I meant was , what happens when i sell a CE ? In the above example, if i sold 4 lots of a CE (the
way we short a futures contract) trading at 64 premium for a 8600 Strike Price, will my account get credited with
64*100=6400 at the end of day due to premium collected from the buyer? And suppose I buy the same CE tomorrow
at a premium of 60, in that case 60*100=6000 will be debited from my account at end of day? Thereby causing a
profit of Rs.400/-. Till now, I have only bought a CE or PE. Never sold one as I am confused how the payment
settlement works. Please clarify my doubts.
Thanks & Regards,
Sunil.
Reply

July 29, 2015 at 6:02 am
Oh yes, this is exactly how it works
So when you short options your account would be credited and when you buy it back money would be debited.
The difference is what you end up making. Also, this is pretty the same way long trade works – when you are
long you buy first and sell later…and when you short you sell first and buy later…its just that the order is
reversed. Either ways the Profit or loss you make is the difference between the debit and credit.
Reply
aehsan4004 says:
can u kindly elaborate more on the shorting of CE concept ?

continuing same example given by mr.sunil .
in first scenario , he sells CE at 64 and buys back next day at 60 … thus earning 400 profit.
similarly if his buying price is more than selling , he will make a loss ….upto here i got the idea.
what happens when he doesn’t buy back and expiry date is reached ? kindly explain pls
Reply

Well you seem to have got the concept completely
On expiry day if the option is worthless then it will have a price of 0. So you would have sold at
64 and exchange will assume you are buying back at 0, hence your profit will be 64. In case of
any other positive value for option then your profits will decrease accordingly. For example if its
15, your profits will be 64-15, if its 30 ..profits will be 64-30….and its its 80 then you will incur a
loss 64 – 80.
Reply
Rishab says:
March 5, 2018 at 12:25 pm
As you said we can short the options till expiry, As on expiry every option nears to Zero or
becomes zero, isn’t shorting options then always profitable, like if we short 2-3 days before
expiry and on expiry it going to become zero, so buying back on expiry date. Please clarify

March 5, 2018 at 12:57 pm
Only OTM options goto 0 (or expire worthless). All In the money options have a non zero
value.
20. sarath says:
August 5, 2015 at 4:29 pm
karthik,
i have a doubt iv= spot-strike,when i see the option chain in nse website this formula not working — nifty spot at
8567
8800 ce iv =11.16 ,8750ce iv=11.20,etc please explain what it is
Reply

Sarath – the IV mentioned in the option chain is Implied Volatility and not intrinsic value.
Reply
sarath says:
August 6, 2015 at 12:11 pm
thank-you very much sir
Reply

Welcome!
Reply
21. amogh says:

August 15, 2015 at 10:28 am
hello sir i m new to option… n have just signed up with zerodha… my question is today say nifty is at 8415, and i m
bullish on it , so i predict the mrkt to go up so i buy a call option .. nifty trading @ 8415, i buy CE option with stike
price 8450 and in return pay the premium for the same which is say 75 , so my queery is what will happen to my
premium of 75 when nifty shoots from 8415 to 8435 , will my premium of 75 also move up i.e say 79 for that
instance.. or will it remain at 75 only and will move up only once nifty moves above 8450 … bcoz i have purchased
a call option with strike price at 8450 .. plz eplain..
Reply
Sunil says:
August 16, 2015 at 7:07 am
Hi AMOGH,
The premium changes as and when Nifty value changes. If Nifty goes up, the premium goes up and vice versa.
How much the premium will change wrt the change in Nifty depends on the delta of the strike price. The
change in premium is directly proportional to the change in Nifty. You can book profit when the premium goes
up just like u do when the price of a stock goes up. Hope that answers ur query. Happy trading.
Reply

August 16, 2015 at 1:08 pm
I dint notice your comment Sunil, thanks for pitching in
Reply

August 16, 2015 at 12:53 pm
If Nifty moves up, the call option will also move up..to what extent it will move depends on the Delta of the
option.
Reply
Sunil says:
August 17, 2015 at 2:35 am
Hi Karthik.,
U have taught us soooo many things. So I consider it my responsibility to pass on the knowledge gained
from u to others. After all, knowledge increases by sharing.
Reply

August 17, 2015 at 6:30 am
Sunil, I’m very happy to hear this ! Have you read this – http://zerodha.com/z-
connect/queries/stock-and-fo-queries/introducing-varsity
It talks about our rational behind starting Varsity.
Reply
Sunil says:
August 17, 2015 at 12:52 pm
Yes Karthik, I had read that article. I’m really glad to see the effort you guys take to educate
people. And best part is that you are giving the knowledge for free at a time when hardly
anything comes without a price. Won’t be surprised if some day we also have to pay for the
air we breathe. Lol. Zerodha not just offers an amazing and low cost trading experience , but
also connects well with people. That’s what sets Zerodha apart. Keep up the good work.
God bless the team.

August 18, 2015 at 7:09 am
Thank you so much for the kind words Sunil
Sunil says:
Good day Karthik,

I need a little help from you. I am doing intraday nifty options trading and I want to develop
a strategy for the same. I tried looking up online. But didn’t find anything relevant. Could
you please help me with it.
Thanks in advance.

Sunil – please do let me know if you need anything specific.
Sunil says:
Hello Karthik,
I want to know how to analyze nifty chart and what things to consider to decide whether to
go for CE or PE….. And what strike price to trade…..Is there some intraday trading strategy
for nifty options?
My question might seem too generic, but I myself am confused what to look for….
Technical Indicators and candlestick patterns don’t seem to be helping much while I’m
trading options in intraday….. Kindly advise…
Thanx

Sunil – you should not be looking at technical charts of options, it is pointless. Will be
including 1 or 2 case studies towards the end of this module which I suppose will help you
get a better picture.
Sunil says:
Thanx Karthik. I will wait for it. As of now I am trading the OTM options for CE/PE and
looking at the price action from the option charts, I’m determining my entry, stop loss,
target and whether to go for CE or PE. In case I bought CE, and my CE stop loss order is
about to get triggered, I am placing a SL buy order for PE and vice versa. This strategy
seems to be doing fine till now. But I want something better. The Option Strategies I found
online are all for holding the position till expiry. Nothing for intraday. Anyways, will wait
for your future modules.

In fact most of the options are designed for expiry. The next module is all about Options
strategy…hopefully it should give you an insight into devloping something for intraday as
well.
22. amogh says:

August 16, 2015 at 1:39 pm
yea.. thanks sunil… my queery got cleared..
Reply
23. amogh says:

August 16, 2015 at 1:47 pm
thankz karthik….
Reply
24. madhu nair says:

August 27, 2015 at 12:58 pm
hey karthik, i was always under the impression that the option on expiry day trails to zero. the HDFC CE1180 ended
the day at 12 rs odd. why would any one hold on to options after expiry?
Reply

August 28, 2015 at 5:37 am
Madhu – Only ATM and OTM options expire worthless..but HDFC closed at 1193 yesterday…so 1180 CE had
an intrinsic value of 13.
Reply
25. madhu nair says:

August 28, 2015 at 6:58 am
blooper!!! missed that….ok, so from the above e.g of HDFC if i chose a strike and am confident that the spot would
be above that on expiry by say 13 points as it was then, would it be prudent to buy the option when its trading at a
price below 13 and then sell it when it hits the price equivalent to its intrinsic value ( i.e 13)….of course this is based
on the premise that the stock will not dip below 13 points to its strike 11 eight zero.
Reply

August 29, 2015 at 6:19 am
Madhu – selecting a strike such that you gain the most form the expected outcome is the most trickiest job of
the options trader. Towards the end of this module, I will attempt to explain this…request you to please stay
tuned
Reply
26. Pranav J says:

August 28, 2015 at 5:37 pm
hi karthik ,
great forum.
for eg: if I bought nifty 8100 call @142 CMP 8002, my doubt is even if the spot reaches the strike price I will make
a profit of 98/- rs per share but i’m paying 142 premium per share ,so will 8142 be my breakeven pt, please clarify.
My frnd said it does not matter if spot reaches that strike price i can book profits as premium increases , and square it
off.
please clarify possibly with an example of how premiums change with time.
Thanks in advance
Reply

August 29, 2015 at 6:34 am
Yes, your breakeven point is 8142. However the breakeven point matters only if you intend to hold till expiry.
In case the spot reaches the strike and there is ample time to expiry then like your friend mentioned, your
premium is likely to be much higher than 142.
Reply
Prakash says:
June 6, 2019 at 3:06 am
Dear karthik
I have a small doubt …plzz tell me can we earn profit on premium even if the market price doesn’t reach
the break-even…???
Eg- suppose if I buy NIFTY 12000 CALL at 5rs …so my breakeven should be 12000+5=12005
So if the market price do not cross 12005 but premium increases to 10 rs….
Then in this case what will be my profit or loss if it has not reached expiry???
Reply

June 6, 2019 at 1:09 pm
Yes, you can Prakash. But like you mentioned, the premium should increase.
Reply
Prakash says:
June 6, 2019 at 3:09 am
Dear karthik
I think the break even in the above case should be the strike price+premium so it should be
8100+142=8242
Kindly correct me if I m wrong ???
M bit confused here ??
Plzz reply to this
Thanks
Reply

June 6, 2019 at 1:16 pm
Yes, thats the breakeven for a call option.
Reply
27. Manish Bothra says:

is it possible that the MP of the stock goes up but at a particular strike price on the same day for buying call the
premium price goes down?
Reply

Possible, please do check the chapter on Vega – http://zerodha.com/varsity/chapter/vega/
Reply
28. Durjoy says:

On exercising a call,do the shares need to be sold immediately?Or can they be sold later?
Reply

Everything is cash settled, so there is no need for actual buying/selling of stocks.
Reply
29. Sunil Tyagi says:

The commission paid is not included in calculation of Break Even point.

The break Even formula should be modified as below :
B.E = Strike Price + Premium Paid + Commissions
Reply

Agreed…also it should be noted that the commissions vary broker to broker.
Reply
30. mathew says:

I got a little confused after reading the comments.
1. If I buy an option today, can I sell it before the expiry date?
Reply

Yes you can sell it before expiry.
Reply
31. Deepali says:

October 13, 2015 at 10:20 am
Hi Karthik,
I am beginner in options. Its very nice information about options. I have below queries:
1. How to select Strike price? U mentioned in few comments that u will take it up and add about it in this module.
but I am unable to find about this. Can you please elaborate this?
2. About option strategies, U mentioned one or two comments u will give one or two scenarios for better
understanding of option trading and strategy..Also I am not able to find Option Strategy module…
Thanks in advance!
Reply

October 14, 2015 at 8:35 am
The next chapter (chapter 22) – will upload next week) is all about strike selection.
In chapter 23 I will discuss few case studies – simple option trades and the rational behind. Hopefully this will
help.
Reply
32. Anurag says:

October 30, 2015 at 11:55 am
Hi Karthik,
Wonderful, truly amazing an initiative the whole Varsity is. IMHO, Its one of the best resources for uninitiated
aspirational traders/Quants to get started.
Just one thing specific to the Options – Everywhere you have indicated 3 scenarios while taking a Call Buying
decision. (lemme take Ajay-Venu’s example).
1. Price of Land can go higher than 500,000, say 800,000

2. Price of land goes lower, say 300,000
3. Stays same @ 500,000.
Mind you, the premium was 100,000 to start with, right ?
Now, you have indicated that under Scenario 1, Ajay stands to gain. i.e, if price of Land upon expire is > 500,000(>
Strike Price).
Should scenario 1 be sharpened to say that Ajay stands to gain when {Land Price > (Strike+Premium) } ?? I mean,
what happens if Land price increases from 500,00 but only till 575,000 ? In that case, Ajay pays =
100,000(Premium) + 500,000(Strike Price) but his in-flow will be only 575,00. Doesn’t he lose 25,000 in this case
though it meet criteria of Scenario 1 ?
Maybe, I am missing a very basic point while raising this question. Do help me get clarity.
Rgds,
Anurag
P.S: Keep up the great, GREAT work !!!
Reply
Anurag says:
October 30, 2015 at 12:02 pm
Got it by getting to the B.E point later in the chapter.
Ignore the question. But still keep up the great work !!
Rgds,
Anurag
Reply

Good luck
Reply

Anurag – Thanks for kind words
Yes, it does make sense. However the idea at this stage is to slowly introduce the concept. Eventually I have
discussed the Premium angle as well.
Reply
33. Yogesh Rajput says:

Hi, I was trying to calculate Total margin required using SPAN calculator. My question is whenever I am checking
margin for any Buy (either CE or PE), margin required is shown as zero. Why is this so?
Reply
34. Bibin says:

Sir supose nifty was at 7820..i bought 7900ce with premium of 90…nifty has reached 7860 day high premium at 150
can i squre off my position and book profit..or do i need to wait until nifty to toucch7900 to book profit..
Reply

You can certainly book profits and get out of the trade.
Reply
Ram says:
March 19, 2019 at 1:21 pm
What about Exercising the option. I dont see it anywhere. As you said we cant exercise the option untill
its expiry date. How can you square off before the expiry date.
Reply

March 20, 2019 at 11:04 am
It is assumed that you wish to exercise the option if you let your ITM option expire (meaning you
do not square off the position on expiry).
Reply
35. Rajan Kombu says:

Just no where I have seen such a simple and wonderful tutorial to teach Options. Excellent!!!! Keep Rocking!!!!
Reply

Merci Beaucoup …meaning ‘thanks a lot’ in French!
Reply
Arijit Banerjee says:

I don’t see our beloved Sir, instead I see an EDHEC grad here
Reply

Ah, EDHEC is very close to my heart! It helped me see the financial markets from a completely
different perspective
Reply

as u advised me earlier, I am on the way to pursuing cmt and cfa now.

these give me a huge insight to develop how financial market works. And my every
aspiration started from this varsity module.
It’s beyond my words how much I respect and how much Zerodha, Varsity, You, Nithin Sir
means to me ??.

Thanks for the very kind words, Arijit. We feel privileged to receive so much love and
respect
36. Shubham says:

In the given example, even if the price increases from 2026.9 but stays below 2050, loss of 6.35 per share occurs.
Won’t it make more sense if one buys futures (cover/bracket) instead of options?
I’m asking this as it was mentioned that options are more attractive choice.
(I appreciate your efforts, plz dont kill me)
Reply

December 13, 2015 at 12:54 pm
Well the whole deal with options is that there is protection on the downside and we clearly know what is the
loss in the worst case..since loss is pre defined, hence the preference of options over futures.
Also, I suppose between 2026 and 2050, the loss is being minimized as we approach the breakeven point.
And don’t worry, I will not kill you
Reply
37. Shriram B says:

Hi ,
Just a quick query.what all factors affect the open price of a option. Is there any technique to guess it. There is a huge
gap in previous day close and present day open. Which we don’t see in equity.
Reply

The opening price of an option depends upon how the underlying opens….and this really depends on the
overnight news flow!
Having said this, do note certain illiquid options do tend to gap up/down.
Reply
38. Sooraj J Mishra says:

January 1, 2016 at 8:25 am
Hello Sir,
I want to ask you that suppose I bought 2 lot Nifty 7900CE @ 80 and holding it till expiry. Now on expiry day Nifty
is trading @ 8000. that means I can execute my contract since I am in profitable condition. but I could not
understand how to execute the contract? I mean what happens on expiry day? Do ‘executing the contract’ means
selling 2 lot that I have been holding ? Please clear my doubt although looks silly…!!!!
Reply

Sooraj – In a profitable situation like this you can choose to let the contracts ‘expire’ (meaning you do
nothing) and the exchange will ensure you are settled to the extent of your profitability. In other words if you
are supposed to get Rs.100 as profit, exchange mechanism will ensure you get this money to your trading
account.
Alternatively if you want to go ahead and sell it yourself, you can do that as well.
Reply
Sooraj J Mishra says:

Okkkkk…..You mean I just have to do nothing and let it expire if I am in a profitable situation….. got
it..
Thanks a lot Karthik Sir…
You are really doing remarkable job for beginners like me..keep it up…God bless you..!!
Reply

Yes Sooraj. Although if you have bought an option and it is profitable, it makes sense to square it
off yourself just before expiry to avoid high taxation. Please do read through this to understand
this better – http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Reply
Sooraj J Misjra says:

Right Karthik Sir, I even don’t keep contract until expiry.. I usually hold them for 1 or 2
days…because We can never be sure what happens next in market….!!!

Some perspective
39. Vivek says:

Hi Karthik,
I want to ask, I purchased CE 8100 @6.80 with 28JAN expiry.My order type is “NRML”. Now NIFTY is going
down NIFTY is @7640, so obvious CE 8100 becomes 5.90. So am in loss right now. But till expiry I have time &
hope NIFTY will gain. Suppose NIFTY will trend to 7800/7850 on date 18 JAN, Call which i bought become to 10.
So I would get profit of Rs 3.20 per lot. At that moment on 18 JAN can I sell the call option directly or shall need to
convert from order type “NRML” to “MIS” and then sell?.
am confused on this. Please assist.
Reply

Yes, you would be in profit of Rs.3.2 (in case the option goes to 10). You can square it off from the position
using NRML…no need to convert to MIS.
Reply
40. kashyap says:

March 17, 2016 at 4:10 am
Hi Karthik,
I am beginner in Option trading.
This is really a good material for beginner.
But I have a doubt that when will I make profit? Means when premium goes up OR strike price goes up.
Please clarify. Thanks in advance
Reply
ShreyaDR says:
March 17, 2016 at 5:46 am
When premium goes up. Strike price will not move like premium. In equities you have choice of many stocks
like Infy, SBI, Reliance & so on… while in Options if you take one stock e.g. infy which trading at 1160 right
now….it has strike prices with a gap of 20 rupees….1180, 1200, 1220, 1140,1120,1100 like that…..each has
different premiums…..all the strike price have two options again Call (CE) & Put (PE)…..so if you are bullish
on infy you can buy call 1160 or 1180 or above and if you are bearish you can ‘BUY’ put options
1160,1140,1120 & below. farther the strike price…moneyness changes….and so the option greeks also. e.g.
now u r bullish on infy and bought 1160 call option….if spot price of infy moves up from 1160….its premium
will also move up…. provided it is ATM or ITM option and not so near the expiry.
Am i explained right Karthik?
Reply

March 17, 2016 at 9:32 am
Perfect
Reply

March 17, 2016 at 9:30 am
Strike price is a constant and it does not move. You make money on the premiums.
Reply
41. kashyap says:

March 17, 2016 at 9:52 am
Ok thank you SHREYADR and KARTHIK. Now i got it that we make money when premium goes up and we lose
money when premium goes down. right?
Reply
ShreyaDR says:
March 17, 2016 at 11:59 am
Your are right KASHYAP buy that is when your buyer of the option. if you are writer(seller) of the option,
going down of premium is favourable for you.
Reply
kashyap says:
March 17, 2016 at 12:25 pm
very thank you SHREYADR to help me.
Reply

March 19, 2016 at 1:56 pm
Perfect!
Reply

March 19, 2016 at 1:54 pm
Well, that depends on your position. If you are long on options you make money when premiums go up…but if
you are short (have written options) then you make money when premiums go down.
Reply
42. kashyap says:

March 18, 2016 at 6:03 am
Now If I buy a lot of 800 of CENTURYTEX MAR 500CE at the Rs.16 premium (my total premium is
800*16=12800), after few hours premium is increased to Rs.20, so If I do square off at the profit of 20-16=4 Rs, how
much total value I get?
Reply

March 19, 2016 at 2:03 pm
20-16 = 4
4*800 = 3200 will be your profit.
Reply
43. kashyap says:

March 18, 2016 at 8:28 am
If premium goes high and i am in profit as premium, but breakeven point is not reached then what happened? Am i
in loss or profit?
Reply

March 19, 2016 at 2:04 pm
If you are doing intraday then there is no concept of breakeven. For you to be profitable, the premiums have to
move in your desired direction.
Reply
kashyap says:
March 20, 2016 at 6:54 pm
that means if i do BTST (or before expiry) then breakeven is applicable, right?
Reply

March 22, 2016 at 5:31 am
Breakeven is applicable for trades held till expiry, all other cases it does not.
Reply
kashyap says:
March 22, 2016 at 6:55 am
ok now i have cleared my doubt. Thank you very much KARTHIK…

March 23, 2016 at 6:59 am
Welcome!
44. ShreyaDR says:

March 18, 2016 at 10:40 am
1) u r into gross profit of Rs.3200/- i.e. excluding brokerage n taxes.
2) Which break-even point you are talking about?
Reply
45. kashyap says:

March 18, 2016 at 12:50 pm
Hellow SHREYADR,
2) I am talking about, in the case of i have mentioned above example (CENTURYTEX MAR 500CE), if I have
bought lot qty=800 premium=16 strike price=500. So my breakeven point value 500+16=516, right?. Now, after few
hours premium goes to 20 and spot price is 510 then in this situation am i in profit or in loss?
Reply
46. ShreyaDR says:

March 21, 2016 at 5:21 am
Technically speaking 516 is ur breakeven point. but traders don’t trade like that…they just trade
premiums….keeping target and stop loss in mind.
secondly premium will definitely rise from 16 to some upper value when spot price moves from 500 to 510….but it
may not rise by Rs.10 (510-500) and become 26 (16+10) because of the option greeks comes into picture.
Reply
kashyap says:
March 21, 2016 at 9:45 am
ok thanks…but i don’t know about option greeks. I have to learn about it.
Reply

March 22, 2016 at 5:39 am
Greeks are explained in this module, maybe that will help.
Reply
kashyap says:
March 22, 2016 at 6:53 am
ok
Reply
47. animesh says:

March 25, 2016 at 7:49 am
Hi Karthik,
When I make a profit due to the increase in premium, i.e., when i buy a CE and later on sell that CE back for a higher
premium before expiry, will it be like, I would be obliged to exercise my selling CE on the expiry date?
Reply

March 28, 2016 at 7:02 am
No, it simply means that you bought an option by paying a certain premium and sold it later for a higher
amount and pocketed the difference. That’s about it. When you buy – sell before expiry then its just a play on
premium…exercise of options is applicable only upon expiry.
Reply
animesh says:
March 28, 2016 at 8:17 am
Thank You So Much Karthik. So nice of you
Reply

March 29, 2016 at 12:52 pm
Welcome!
Reply
48. anil says:

March 25, 2016 at 11:19 am
Hi Karthik,
Is it possible to first sell a call option and then buy it back at a lesser premium making a profit
Reply

March 28, 2016 at 7:03 am
Yes, of course.
Reply
anil says:
March 28, 2016 at 8:16 am
Thanks for the reply. So its like, we can short sell a call option
Reply

March 29, 2016 at 12:52 pm
Yes, you can short a put.
Reply
49. kashyap says:

March 28, 2016 at 5:56 am
Hi,
If I bought 2000 lot size of Justdial MAR 750 CE today with premium 25 (2000*25=50000). After few hours
premium is 23. If i book loss then how much total loss i receive?
Reply

March 28, 2016 at 7:20 am
25-23 = 2. Your total loss will be 2*2000 = 4000.
Reply
mohitkocharsbi says:
July 1, 2017 at 3:42 pm
50000 is premium so total loss is 50000+4000= 54000.am i right? Or loss is only 4000
Reply

July 1, 2017 at 4:58 pm
You will have to consider the difference in the premium multiplied by lot size for P&L.
Reply
50. kashyap says:

March 28, 2016 at 6:52 am
And If i leave this position for expiry, then what?
Reply

March 28, 2016 at 7:21 am
It depends on the stock price on the expiry date.
Reply
kashyap says:
March 28, 2016 at 7:27 am
for example stock price is 780, then?
Reply

March 29, 2016 at 12:52 pm
Then your profit will be 30, out of which 25 will get adjusted with the premium paid. Hence you
will be left with 5.
5*2000=10,000/-.
Reply

Just an addition. There will be a large outflow of money as STT charged which will be
[(780*2000)0.125%] = 1950/-
(Comparatively as other charges are very minimum, I’ll keep those out of calculation).
Sir, am I right?

I’m assuming you are talking about ITM option expiring. If yes, check the latest circular
from NSE – https://tradingqna.com/t/no-more-stt-trap-on-exercised-in-the-money-
options/18977
So no more STT trap.
51. pradeep says:

April 15, 2016 at 10:50 am
Sir,I am new to f&o. My question is if I have to trade in options, should I have the entire
Margin for call buying or should I pay only the premium. For suppose if I want to
Buy bhel Apr220 call at 5 premium, if I have 50000/- in my trading account ,can I purchase 10000 shares with that
amount or should I have the entire margin for buying the call option.
Reply

April 17, 2016 at 7:20 am
Pradeep – When buying options (either call or Put) you only need to pay the premium amount required. But if
you want to short options (either call or Put), then you need to pay margin amount.
In your example the amount you will have to pay for 220 Call option is 5 * BHEL lot size.
Reply
52. pradeep says:

April 15, 2016 at 11:36 am
Sir, if bhel 220 april (lot=2000) CE premium is rs 5. If a lot of bhel is rs35640. If I have 50000rs in my trading
account. Can I purchase three lots with the amount that I have in my account or I should have
the entire marginal cost(3*35640) in my account to purchase the call.
Reply

April 17, 2016 at 7:30 am
Lot size of BHEL is 2000. Premium is 5, hence to buy 1 lot of BHEL you would need 2000 * 5 = 10,000/-.
Since you have 50K in your account you can buy 5 lots.
Reply
53. Sooraj Jogendra Mishra says:

April 25, 2016 at 4:10 pm
Dear Karthik Sir,

I want to know about stoploss for option premiums..suppose I purchased 2 lots of nifty 7900 PE @ 56 with a stoploss
50 on BTST basis. later in the next day Nifty open gap up and Nifty premium opened @ 29 then what happens to my
stoploss?? will my order get executed on 50 or 29?? Plz reply.
Reply

April 26, 2016 at 12:56 pm
When you purchase a put option, you want the prices to fall, hence your SL should be higher than 56 and not
below.
Reply
Sooraj Jogendra Mishra says:

April 26, 2016 at 3:32 pm
Sir you actually didn’t get me.. I mean I have 2 lots of 7900 Put options @ premiums 56..My intention is
market would fall tomorrow so I held them so that premium go above my purchase price…and I kept my
stoploss to 50..
but what happens is next day market opens gap up then definitely my premium would fall…and suppose
gap up was so sharp that put option premium opened @29 then would my stopploss trigger @ 50..??
I hope you get me..
Reply

April 28, 2016 at 6:22 am
Sooraj – thanks for pointing this, clearly my mistake
SL has to be set everyday and cannot be carried forward. Meaning if I have set the SL at 50 today
but by end of day the SL has not been triggered then it automatically gets canceled at market
closing. The next day you will have to set the SL again….either by placing a Pre market order
(http://zerodha.com/z-connect/queries/stock-and-fo-queries/pre-marketpost-marketafter-market-
orders) or you can place the SL order after market opens.
Reply
Sooraj Jogendra Mishra says:

April 29, 2016 at 6:35 am
Ok I got it…that means We can not carry SL overnight…pre market order is available in Pi
but not in kite.. right??
54. Thamil says:

May 9, 2016 at 11:05 am
Hi Karthik,
I have bought 8200CE at premium of 7(7*75 = 525 ), Now the premium rate is 14.
1. If i squared off now, theoretically i will get profit of 7*75=525. But technically there is no profit/loss, since my
premium amount is tallied there(525 – 525 buying price). right ?
2. if i squared off at 15 i will get profit of 8*75 = 600 and technically 75(i.e., 600 – 525 buying price) ?
3. Let’s assume i will squared off at premium of 6. Is’t possible to squared off less than entered premium ? If yes,
then will i get my premium amount back with calculation of 1*75 loss and 6*75 remaining balance ? Again if yes, i
don’t understand logic here, If i squared off my position less than the premium which i bought then i will get 6*75
but if i am in profit premium of 15 i will got only 1*75 profit(i.e., (8*75 = 600) – (7*75 = 525 buying price) )… big
confusion, pls clarify ?
Reply

May 9, 2016 at 3:47 pm
You will be making a profit…thing about it as buying a stock at 7 and now its trading at 15…so you have
more than doubled you money here. If you square off at 6, then you will make a loss….as you bought
something at 7 and sold it at 6…so a loss of Rs.1.
Reply
Thamil says:
May 10, 2016 at 5:14 am
Thanks for your prompt reply.
Let me ask one more question to get more clarity.

Bought at 7 and sold it at 6.. so a loss of Rs.1 –> yes i understood and here is my qus… is’t mean that
remaining 6*75 will get credit into my account ? (because i read somewhere the premium amount is not
refundable once contract made, so pls clarify).
Bought at premium 7 and sold it at 8, so a profit of 1.Rs. How much amount will get credit into my
account, whether 8*75 or 1*75 ? (Again the same question, because of premium confusion).
Reply

May 11, 2016 at 4:04 pm
Yes, the premium amount will be credited to your account. It will not be refunded if you hold it to
expiry, but in this case you are trading the premium.
In first case you get 6 * 75 in your account…and in the 2nd you will get 8 * 75….the credit will
reflect by end of day.
Reply
Thamil says:
May 12, 2016 at 6:45 am
Thanks a lot and Thanks in advance.
Let me ask few more questions about expiry, (This confusion came, because the spot price
and premium is not equally increasing in real time, as explined in this article)
I bought 8200CE at 7 when spot price is 7900.

And assume,
1) The spot price is 8200 or below at the time of expiry, then the premium will become big
ZERO and i will get nothing, right ?
2) The spot price is 8200 or below, premium is something around 87 and i EXIT explicitly
before the auto expiry, then i will get premium*lot_size, right ?
(Below qus, because of big confusion – who is the hero spot price or premium?, Please
answer profit/loss and the corresponding amount)
3) The spot price is 8206 and premium is 100 at the time of auto expiry then what will i get
?
4) The spot price is 8206 and premium is 100 and i EXIT explicitly before the auto expiry
then what will i get ?
5) Now fortunately the spot price hits 8300 and the premium is 160 at the time of auto
expiry, what will i get ?
6) The same flow, spot price hits 8300 and the premium is 160 and i will EXIT explicitly
before the auto expiry, what will i get ?
Hope, i am not confusing you

May 12, 2016 at 12:45 pm
1) If you buy 8200CE for 7, then you will make a profit only if the spot moves above 8207,
below 8200 you will not get anything.
2) Yes
3) Spot influences premium. If spot expires at 8206, and if you continue to hold the option
to expiry, then you will get only 6 as 6 is the true value of the option
4)100
5) 8300 – 8200 = 100
6) 160
So basically you can exit before expire , then you will get the last traded price of the
premium. If you choose to hold till expiry then you will get the intrinsic value of the option.
55. SOMANI says:

June 4, 2016 at 5:45 pm
SIR , WE CAN EXIT ANY TIME BY TAKING PROFIT OR LOSS ON ANY OPTION AND NOT TO WORRY
ABOUT WHAT IS UNDERLYING SPOT PRICE OR THE STRIKE PRICE PREMIUM ON EXPIRY DAY.LIKE
IF I HAVE CE+ 140, PREMIUM 5 AND I WRITE OFF CE- 140, PREMIUM 8, RS 3 * LOT SIZE IS MY PROFIT
Reply

June 5, 2016 at 5:28 am
Yes, you can exit it at any point in time. No need to wait till expiry.
Reply
56. sarath says:

June 10, 2016 at 5:38 pm
I bought voltas 340 ce jun, its going down, now its below my buying price, i dont want to book loss, but confident it
is bullish, but expiry of june month is coming near.
So question is can i hold on this option? since if i am bulish on this stock.
can i carry forward to next month expiry?
Reply

June 12, 2016 at 8:39 am
Yes, as long as you are convinced you can. But remember a wise man once said “Markets can be irrational
longer than you are solvent”.
Reply
RS6006 says:
@KARTHIK,
@SARATH
What does carry forward mean ?? Selling june option for loss and buying next month option ?
Reply

It just means you sell/buy this month’s contract to buy/sell the next month’s contract. There is no
P&L angle here.
Reply
57. Nil's says:

June 11, 2016 at 2:02 pm
Hey Karthik,
Awesome contents. Thank you for enlightening every nuke doubts.
On option expiry either CE or PE, the cash settlement takes place between buyer and seller. But in the case of
premium how the settlement happens ?
Reply

June 12, 2016 at 9:21 am
Upon expiry, the premium of all ITM options are settled in cash. The value of the premium will depend on the
intrinsic value of the option. Do note, all other options will go worthless.
Reply
Nil's says:
June 16, 2016 at 8:31 am
My question was before expiry if we square off our position, our P&L would be the change in premium.
How does the pay off depending upon premium take place ? Hope you get my query !
Reply

June 17, 2016 at 10:19 am
Yes, if you wish to square off the position before expiry then your P&L is basically the premium
differential. The payoff before expiry would therefore depend on the greeks and the way they
change.
Reply
Nil's says:
June 17, 2016 at 11:24 pm
On Equity, Buy on Less and Sell on High. Profit settles between buyer and seller
counterparts.
On Option CE (square off before exercise) Buy on Less premium and Sell on High
premium. Profit settles between option buyer and seller counterparts for the same strike
price.
Correct me If m wrong.
Thanks

June 19, 2016 at 12:31 pm
Absolutely, that’s the way it would work.
58. BALBIR SINGH RANA says:

June 26, 2016 at 4:13 pm
I CHANCED UPON YOUR SITE. I T IS WONDERFUL. iI COLD NEVER UNDERSTOOD FUTURE AND
OPTIONS. I T MUST VERY USEFUL FOR THOSE WHO ARE IN STOCK MARKET AND ARE BEGINNERS.
EVEN I FEEL ENCOURGED, .
Reply

June 27, 2016 at 11:19 am
Glad to know this Balbir
Reply
59. Raju Shinde says:

July 13, 2016 at 12:04 pm
Sir, Completed this chapter again. And many questions are solved after reading Q&A section. Thanks for such
wonderful effort to teach.
Reply

July 14, 2016 at 8:42 am
Welcome!
Reply
60. Vishu says:

July 26, 2016 at 12:46 am
Hi,
I would thank you for helping us understand the tricks and trade of different trading mechanisms.
I have gone through zerodha varsity for call and put options. However need to brush up on delta, theta and other later
chapters.
I am interested in placing an order for a buy call option for HCLT 28-jul CE, strike at 730, 1 LOT-700, underlying –
739.85, premium – 12.45.
So please clarify on the below points and correct me if I am wrong.
1.) The current premium is 12.45, so as per the guide will Zerodha be charging only premium multiply lot, i.e. 12.45
x 700 = 8715.
2.) So, as the strike is at 730, anything above 730 (ex. 740, 750) is considered a profit trade, and any below 730 then
I tend to loose the premium i.e. 8715.
3.) Expiry for the above is 28-Jul, if for until 27th, the underlying is 750, can I square off or conclude the trade; or is
it essential that I keep it until 28th itself, i.e. expiry.
Please help me on the above points as I am excited to know and educate myself.
Reply

July 26, 2016 at 12:51 pm
1) Yes, premium amount payable is 12.45*700, and this is paid to the option seller, and not Zerodha
2) Yes, you will lose the premium as long as the spot remains at or below 730
3) Yes, you can exit the position whenever you want
Reply
61. VISHU says:

July 26, 2016 at 10:03 pm
Karthik avre, thanks for the confirmation. i missed out on HCLT, which made spot high of 747.
1 more question : Can we carry forward the contract(f & o) to next month. if yes than can you tell me whats the
procedure.
Reply

July 27, 2016 at 12:00 pm
You can buy Aug/Sept contract today and hold this till expiry, this is as good as a carry forward.
Reply
VISHU says:
July 27, 2016 at 11:28 pm
1.) but supposedly, say the Aug contract CE i had taken, did not meet the target, then can i carry forward
this contract to september.
2.) for intraday or short term, as you have described in the later chapters that one can earn on difference
in premium, say on the above case where the premium difference was 22.95 – 12.45 = 10.5, where 22.95
is current premium for the above contract. so the profit is 10.5 * 700 (1 lot)=7350. is that right?
Sir, pardon my questionnaire, its just that i want to know the concept thoroughly before jumping in. i am
enjoying reading the chapters and respect the time you give to us by answering every queries.
Thanks again, Guruji of Zerodha.
Reply

July 28, 2016 at 6:15 pm
1) No you cannot as the Aug contract expires in Aug. However you can close the Aug contract (or
let it expire) and buy/sell the Sept contract. This is also called rollover.
2) Yes
Please feel free to ask as many questions as you want, you need to be knowledgeable before you
place your first trade! Good luck.
Reply
VISHU says:
August 2, 2016 at 12:59 am
Thanks,
Sir Couple more queries.
1.) in the above scenario if i wanted to hold CE sell contract for short term or square off –
intraday, and if the premium is reduced from 12.45 to 10, and i had to close the contract
then the loss would be 12.45-10 = 2.45*700(1 lot)=1715. is that right?
2.) suppose i am bearish on the stock for intraday, say on above scenario where the stock
would have gone down from 12.45 to 10. Can i place PE option for an ATM strike. here the
difference i.e.12.45-10=2.45*700(1 lot)=1715 is considered a profit.
Thank you for humble advise on option strategies in module 2, have read the option
modules. need to go through strategies. i understand the above scenario is something you
would not advise us newbies, however i understand and just wanting to clear some thoughts.
lastly, I am reading this chapters in july 2016, wherein this chapters were written a year
back, your calculation were bang on when it was said “Nifty could be at 8600 with 40%
chance in july 2016”.
Thanks again..
August 2, 2016 at 11:15 am
1) If you have sold the option, and the premium falls, then you make a profit and not a loss.
2) If you are bearish you can either buy a Put or sell a call option
Good luck and happy trading
62. SaikiranGarapati says:

July 31, 2016 at 10:28 am
Hi Sir,
I have a following doubts in options:

1) what is the maximum time allowed to buy call option buy on the expiry day? I tried to place a order at 3:28.it says
rejected even though i tried to place a Market Order?, Please tell me order allowing time levels at Zerodha and
Exchange side?
2)For an Instance, on the Expiry date (28-Jul-2016) HDFC 1400CE the Premium was at 0.40 at 3:28 and seller was
also ready in the system at 0.40, Stock was at 1406 and closed at 1402.15, In this case if my 1400CE Order with
premium of 0.40 executed means,what will be my profit and losses? since it has closed above strike price(1400),
Will i get remaining amount (my premium is 0.40, Strike price is 1400 so 1400.40, stock closed at 1402.15, So the
diff b/w 1402.15 – 1400.40= 1.75) or not?
I hope you understands my query,if not feel free to ask me again?
Please tell me your views on this please?
Regards,
SaikiranGarapati
Reply

July 31, 2016 at 12:13 pm
1) Technically the order should go have gone through, did you have enough funds?
2) You will have the difference in spot and strike minus the premium paid as your profits….i.e 1402.15 – 1400
– 0.4 = 1.75
Reply
SaikiranGarapati says:
Thanks for your answer Sir,.

1)Can you tell me when closing price generally displays in the system and On Expiry day?
2) What price settlement will happen, Is it on LTP(3:30 PM on expiry day) or Closed priced on that day?
3)There are some cases i have seen at 3:30 LTP was some price and closed price was different So what
will be reason for this? What transactions will happen in 3:30 to 4:00?
Please tell me your views on the above queries..
Reply

August 4, 2016 at 11:15 am
1) At 3:40 PM you will know the exact prices closing price

2) Closing price
3) The price you see at 3:30 PM is the last traded price, but at 3:40 PM you will get to know
closing prices.
Reply
Thank you very much for your answers…May i know why there is a difference between
LTP(at 3:30 PM) and Closing price? Can you give me one example?

August 5, 2016 at 11:16 am
Closing price is the weighted average price of the last 30 minutes, where as the LTP is just
the price at which the last trade happened. You can find the example here –
http://tradingqna.com/2512/how-to-determine-closing-price-in-f%26o?show=2512#q2512
63. SaikiranGarapati says:

Hi,
If i buy a call option at 3:28,If i do not square off,but closing is more than my strike price and premium,what
percentage of fine exchange will put for that transaction?
Reply

August 5, 2016 at 11:21 am
There is no fine from the exchange for this. Why do you think exchange would fine you for this!
Reply
Thank you very much for your answers..I read it some where,That is y i thought ,there will be some
fine..May be i am wrong..
Reply
If i do not square off,Exchange will charge STT on total traded value of my Option right? That is
what i am speaking about…
Reply

Yes, but that is not a fine. It is a hefty STT that the exchange charges. More on that here –
http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx

Sure, no problem.
Reply
64. Manowar says:

August 10, 2016 at 9:28 am
Suppose yesterday I paid Rs 3500 as premium of option @0.05 lot size 6800. If after 1-2 days the value of the
premium rise to @0.10. then in that case .Can i sell the option premium to get instant profit before expiry..? will i get
net profit of Rs 3500 ..??
Reply

August 10, 2016 at 10:57 am
Yes, you can do that. No problem with that.
Reply
Manowar says:
August 10, 2016 at 10:07 pm
Will there be any kind of risk of loss like unlimited loss after selling the purchased option. Actually I m
very new to option trading so kindly answer as simple as u can
Reply

August 11, 2016 at 11:44 am
No, when you sell an purchased option you are essentially closing the position. So you are out of
the market.
Reply
65. suneeta Joshi says:

August 11, 2016 at 2:21 pm
Dear Karthik first of all thanks for making these complex things so easy for us. I have a quaestion here, suppose i
create a sell position of call option of ABC comp, strike price 100 rs, primum 5 rs, lot 1 that consist 100 nos. So i
will get 500 nos as premium to be credited to my account. and after 10 min if i find that there is no change in
premium. So if i close my position on same premium after 10 min then what will be my profit? thanks
Reply

August 12, 2016 at 11:00 am
If you happen to buy it back at the same price i.e Rs.5, then you will have no profit no loss. Of course, you will
lose brokerage and all the applicable charges and taxes.
Reply
66. Gautam Prakash says:

October 25, 2016 at 10:07 pm
He guys it was my first time buying an call option of JPASSOCIATE. I had bought the 15CE at 0.05 per lot which is
going to expire this thursday. Any Idea what should I do since I couldn’t exit this position?
1) If I square it on the expiry day how much would I get?
2)If I just leave it to expire what would happen and how much would I get?
Reply

October 26, 2016 at 11:13 am
Gautam – if you read through the entire module carefully, you will realize the answers yourself
Reply
67. Shovkuma says:

Dear sir, what is the actual thing we do when we say exercise an option?
Means in our bajaj auto example if before say 5 days before expiry apot price touched 2080 and if i say want to
exercise option means what i have to do…do i have to purchase real shares to exercise it?
Second thing if when my call option ITM and if i sell it before expiry..then difference in premium is the only profit
that i earned?
Reply

Exercise an option means that you hold the option which you have bought to expiry. You can choose to close
your position before expiry this is just termed as booking your P&L.
All equity derivative contracts in India are cash settled – so it is not required to purchase shares.
Yes, you earn the difference in premium.
Reply
68. Bhaskar says:

Hi sir,
Just having query
If today I buy call option in sbi strike price 300 price 1.60 exp 29dec 2016
If sbi move till 270-280 still I can square off this option or not?
Also we have to square it off at market price?
Reply

You can certainly square off, but by using limit orders.
Reply
Bhaskar says:
Thanks KARTHIK great work
Reply
Bhaskar says:
Can you please share any video link or any steps to square off above option in zerodha
Reply
Bhaskar says:
Any option buy and then square of with zerodha ( video or ppt ) is great full
thanks

Check this – https://www.youtube.com/watch?v=S8fRxNaN-

Pg&list=PLkxTRam6E2V_YYRSqzCjRq20fYPh9bkSL&index=3

Cheers!
Reply
69. Bhaskar says:

Any option buy and then square of with zerodha is great full
thanks
Reply
70. Khan says:

I went through the entire module and was very confused although I understood around 40-50%. Read it the second
time, things started becoming a little clearer than earlier because I made sure that I understood each and every line of
yours but still had some confusions. I still understood only around 60-70%. Nevertheless, I took the pain to read the
entire module yet again and guess what, it is like I knew Options right from the time I was born (lol). It is so much
clear now. Thank you so much Karthik!
I have shared my experience so that other readers need not get disheartened if they don’t understand it the first time.
Keep reading it again and again and I assure you that things will start becoming clearer in your head.
Reply

Khan, thank you so much for the kind words and the practical tip to readers here
Reply
71. Romil says:

January 9, 2017 at 4:43 pm
However I do not want to buy the stock for delivery (yet) as I’m worried about a further decline of the stock. I did
not understand this point and what is stock for delivery please explain and yes hatss off for simplfied explanation of
all the topics of all the modules
Reply

‘Stock for delivery’ means buying the stock with an intention of holding it for many days/weeks/months/years.
So what I mean to say is that I dont plan to buy the stock on delivery basis as I fear the prices may go down
further, thereby giving me a notional loss.
Reply
72. p.shunmugaperumal says:

February 5, 2017 at 5:25 pm
can i close a option buy call before my expiry date
Reply

February 6, 2017 at 10:56 am
Yes, you can.
Reply
73. MSP says:

Hi Karthik,
STT, yesterdays(9/02/2017) appeal, i am confused, a person buys 3000 nifty 8622 call for .05 paisa at 3:20 p.m , how
come he has thought, that before 3.30 his call will be bought by some trader, besides this , if he leave the entire lot
unexercised , what was he expecting, exchange would bear the losses?
Please help me to understand this.
Regards,
MSP
Reply

What he did was very simple – at 3:20PM he estimated that Nifty will close above 8600, I guess at 3:20, spot
was just shy of 8600…so he went ahead and bought 8600CE. As per his expectation markets did close above
8600…I guess at 8602…so his call options turned profitable (and therefore ITM). But unfortunately, he was
not aware of the STT implication on ITM the options. So he ended up paying a huge STT, which was way
above the profits he made. Check the implication of STT here – http://zerodha.com/z-connect/queries/stock-
and-fo-queries/stt-options-nse-bse-mcx-sx
Reply

zerodha has currency buy call option know otherwise it has buy call option only for nifty and banknifity alone for
trading
Reply

There are options on USD INR, Nifty, and Bank Nifty.
Reply

to find option premium we hake to multiply the lot size with ltp of corresponding strike price to get premium value
Reply

No, premium is a price that prevails in the market. Check the option chain.
Reply
p.shunmugaperumal says:
the premium value is only the ltp value
Reply

Yes, since the premiums are traded, it has an LTP value.
Reply

option have lot size know
Reply

Yes, keeps changing as per market conditions.
Reply
77. Shreyas says:

Hello Sir,
I am new to the Zerodha Varsity and am following the chapters intensely.I must say you are doing a gr8 job of
educating us that too for free.I have read a couple of books on options and watched lots of youtube videos but till
now I wasnt able to grasp the topic.Reading ur chapters h has cleared many of my doubts.Keep up the good work
and educate us on more and more successful strategies.Also i want to ask can I just be an options trader exclusively
and make good profits with minimum risks(till now I was doing futures and cash and lost quite a bit}.Plz enlighten.
Reply

Shreya, I’m happy to know that you like the contents here.
You can choose to trade any financial instrument (equity spot, futures, options, commodities, currencies etc)…
your profitability depends on your trading strategy and how well you execute the same.
Reply

try to explain me more detail about premium calculation profit and loss calculation
now i am buying a wipro contract of strike price 490 now the ltp is rs1.80 no of lot is 1200
if i buy 2 no of lot means i have to pay 2*1.80=3.60rs (or) 1200*2*1.80=4320
now if current wipro is trading at 500 means my profit will be =10*1200-3.6 (or) 10-3.6 (or) 10*1200-4320
Reply

It will be lot size * number of lots * premium, so in your example it will be 1200*2*1.80=4320
Your profit will be lot size * number of lots * (premium received- premium paid) and in your example it would
be – 1200 * 2 * (10-1.8)
i.e 1200 * 2 * 8.2 = 19,680/-
Reply
p.shunmugaperumal says:
thank you zerodha support for providing continuously for support
Reply

Cheers!
Reply
79. trader2017 says:

If for a particular series of option, there is significant change in the open interest every day but no major change in
volume then what does this indicate?
Reply

Very unlikely, if the OI changes, so should volume.
Reply
80. Girish says:

sir,
if i purchase jswsteel 195 CE at 6 (3000*6=18000) and if stock price goes to 200 from 190 then how to calculate
profit ?
Reply

If it goes to 200, then the premium will also increase. The difference between how much premium you paid
and received times the lot size is your profit. Good luck.
Reply
81. tmothe says:

Assume that if stock price moved to 200 then your option price also moved from 6 to 8 (But there is no guarantee
like option price need to move along with stock price). Some time even if stock price touch the 200 option price will
increase only .50 paise (i.e 1500/-)
Reply

Most of the times it does, but yes, not always. This is because of the volatility competent.
Reply
82. vijay says:

March 8, 2017 at 10:29 am
What is implied volatility? How we can use of it in real time? Can you give an example to understand.
Reply

March 8, 2017 at 12:19 pm
Implied Volatility is the volatility expectation of the market participants. I’ve explained volatility in detail
across 3 chapters, check this – http://zerodha.com/varsity/chapter/understanding-volatility-part-1/ and the
subsequent chapters.
Reply
83. Arun says:

March 24, 2017 at 12:05 pm
Karthik,
1.) What is the procedure of exercising my long call option on expiry day apart from letting it expire?( I want to
know what order to place through the trading terminal) ?

2.) On any other day we can trade the premium but can we trade the premium on expiry day also?
Reply

March 25, 2017 at 6:51 pm
1) Yes, you can let it expire as such and it will get settled by the exchange. However, if your option is ITM, I’d
suggest you sq it off yourself. Check this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-
options-nse-bse-mcx-sx
2) Yes, you can.
Reply
84. Vikas Gupta says:

March 25, 2017 at 1:26 am
Hi Karthik,
What will be the brokerage charges in buying a call options?

Let’s say I buy a call option of Tata Motors at strike price 480 and premium for this is Rs. 20. In this case what
would be total brokerage that I need to pay?
Reply

March 25, 2017 at 7:08 pm
Tata Motors has a lot size of 1500, so you will pay a premium of 3000 (1500*20), for which the brokerage is a
flat fee of Rs.20.Remember its 20 per executed order…it does not matter how many lots you buy.
Permit me for a bit of marketing here – Zerodha is the cheapest, technologically advance, and most customer
friendly brokerage in the country. If you are not with us yet, please do consider signing up
Reply
Anup Padamwar says:

March 16, 2018 at 11:22 am
That is Absolutely correct
Reply

March 16, 2018 at 11:54 am
Cheers!
Reply
85. Arun says:

March 27, 2017 at 1:08 pm
Hi Karthik
On expiry day if I square-off my ‘in the money’ option then how I will calculate my profit:
1.) Difference between the premium
OR
2.)Max[0, (Spot price-strike price)] – Premium Paid
Reply

March 27, 2017 at 10:45 pm
If you hold the position till expiry, then you will get the intrinsic value of the option, which is defined by the
equation you have mentioned (applicable for CE). For PE it would be Max[o,(strike-spot0]-premium paid. Do
note, if you are holding an ITM option, then it is better to square off the position just before the closing on
expiry day. Read this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Reply
86. Ankit says:

March 30, 2017 at 1:14 am
Hello sir ,
Sorry for testing you, but i got an problem about options trading
please have a read on this
Suppose date is 24/03/2017
Option – USDINR call option (Buy)
Strike rate 66
CMP – 65.4575
Premium 0.0100
Expiry 29/03/2017
Qty- 13 ????? (is this just 13 or 13×1000=13000) not sure about this
and here is the output of this trade
The premium was 0.0025 around expiry
so Karthik sir my doubts for you are foolowing
1. On expiry day near closing time a pop up window appearing in pi saying please close the ITM possitions for
avoifing paying extra STT
What’S the meaning of that window .
2. If i want to choose buy currency CE and press F1 button then in QTY colum it is showing by deffault 1
Is this 1 qty or 1 lot (1000 qty)
3. Suppose i am in profit which is i am not just assume before expiry IS this mean this is due to inceease in premium
say 0.0150,0.0200 or whatever u think so
OR
this is anything else otherthan increase in premium
4. If i choose to close my ITM option on expiry day before 5:00 pm (say 11:00 AM) what would be then
let option’s CMP IS 66.20
Will this exit on profit which was due to premium
or will exit at 66.20
and profit will = {13×1000(66.20-66.00)-(13×1000×0.0100)}=2470 Rs.
5 lets say i am not closing my position upon expiry
Will be forthcome
And what is this excess STT and how much extra is it
6. I am not closing my position because i assume it
This will wash out my profit on (66.20-66.00) right and limited it
To increase in premium
Actually sir this was my first ever trade in derivative segment

And i cloed my position yesterday morning having loss around
95 RS. . Iwas just testing my learning it was great experiance
Means -75% movement is this comon
Sir please guide me some tips to learn properly in this
Segment if you can
and last really reallt Sorry for forcing you to upload PDF
It was long way back you did not remember that day but i
Can please stay fit and healthy after all you need health
to teach us
Essay over……gud nyt
Reply

March 30, 2017 at 12:26 pm
1) Read this to know why we pop that message, although it is not really applicabe for currency trading –
http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
2)Yes, 1 means 1 lot
3) I dont understand this statement
4) If you close the position, you will receive the difference in premiums (i.e between buy and sell price of
premium) times lot size.
5) Read the link pasted in 1st point
We are working on putting up a PDF soon.
Reply
87. Ankit says:

March 30, 2017 at 1:32 am
I know there is no STT on currency derivatives in india you can assume that STT pop up window question for stock
or index derivative instrument..
Thanks for help
Reply

March 30, 2017 at 12:29 pm
Yup.
Reply
88. Pravin Patel says:

April 9, 2017 at 10:24 pm
Hi
I have query regarding exercise of options.
I will buy nifty call options exp 27 April at strike price 8800 premium 450.
Can I exercise at spot price before expropriation date.
If yes than what whoud be profit or loss pls clarify.
Reply

April 10, 2017 at 10:29 am
No, you cannot exercise the option before the expiry. However, you can choose to square off the position
whenever you want. You need to be aware that both exercise and square off are two different things.
Reply
89. Mahi says:

April 22, 2017 at 5:31 am
If suppose We brought some share @ 280 and after some day it increased to @ 300, can we sell then or have to wait
till expiry. If in future share price fall like next day it fall @ 250 I mean to ask if we can sell off shares just like in
Equity market?
Totally new into stock world, sorry if its stupid question
Reply

April 22, 2017 at 11:55 am
Buying shares is in the spot market, it has nothing to do with EQ markets. You can hold on to it for as long as
you want. Even the futures contract can be sold anytime you wish, no need to wait for expiry.
Reply
90. Naresh Kumar says:

April 24, 2017 at 11:36 pm
quick question: can we buy 2000 call option when spot price is at 2026.90 ? if so, assume the price settled at 2012
upon expiry .. it is still above the strike price, what would be my P&L?
Reply

April 25, 2017 at 7:17 am
The option would be settled at 12. Your difference will be 12 minus the premium you paid.
Reply
91. Naresh Kumar says:

April 24, 2017 at 11:56 pm
also, what would the p&l if we choose 2010 as strike option, assuming the spot price ends same as above?
Reply

April 25, 2017 at 7:20 am
10 minus the premium you paid.
Reply
92. Arun Kumar Kushwaha says:

April 28, 2017 at 7:33 pm
I need to understand the actual Calculation behind.. how Options are calculated…
according to attached screen shot.
http://prntscr.com/f1v9c0
Yesterday (27 Apr 2017) Nifty expired @9342.15 ..
PE 9350 @7.40 and CE 9300 @30.25
Calculation Theories Says
option value is = Time Value + Intrinsic Value
so Put price 7 is ok.. but CE should be 42 but it’s 30..
plz help in understanding it…
Thanks…..
Reply

April 29, 2017 at 7:44 am
You are looking at the last traded price, I’d suggest you check settlement price. It will be 42.15.
Reply
Arun Kumar Kushwaha says:

April 29, 2017 at 1:48 pm
Sir where i can find this settlement prices?
Reply

May 1, 2017 at 9:40 am
NSE webiste. Goto the option’s quote page.
Reply

April 29, 2017 at 1:59 pm
Sir i have searched for the data and found it.

but all the settlement prices in all the option whether in PE or CE is 0
screen shot is attached for CE 9300 http://prntscr.com/f25bqt and CE 9000 http://prntscr.com/f25b9s also. plz have a
look
Reply

May 1, 2017 at 9:41 am
Yes, 0 indicates that the option expired worthless.
Reply

May 2, 2017 at 12:32 pm
But It was ITM Options… how Can ITM option expires Worthless.
in that case if buyer doesn’t square off their position Before Expiry, their ITM options will expire
Worthless??
really…
Reply

May 2, 2017 at 5:31 pm
ITM cannot expire worthless. Exchanges will take the onus of clearing the ITM options on your
behalf. By the way, you may not want to hold ITM option upon expiry due to STT reasons. Check
this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Reply

May 3, 2017 at 7:50 pm
I have searched and got another link on NSE, it’s bhav copy..
http://prntscr.com/f3nb1i
and Got the price Differences on closing basis Vs LTP..
so actual close was..
CE 9300= 38.45 and LTP was 30.25

PE 9350= 6.85 and LTP was 7.40
but not able to find actual reason behind why minimum price differences is still there
according to Theory and actual closing.
and sir i had read STT trap previously and know why not to leave ITM position open
@expiry.
Thanks for making all the tough theories easy to understand, and making them all available
@ same place..
but now plz help me finding the difference between these prices why settlement is not
according to theory?
is there any hidden charges or taxes?

May 4, 2017 at 11:10 am
The difference is because that there is a difference between LTP and closing prices. Closing
prices is the average of the last 30 mins of trade.
94. P Shunmugaperumal says:

May 1, 2017 at 8:56 pm
what is bid price and ask price .if ltp rate on the nse option chain is not present means shall i can consider any
amount as that contract ltp the minimum ltp value is
Reply

May 2, 2017 at 7:14 am
Check this for bid – ask spread – http://zerodha.com/varsity/chapter/the-trading-terminal/
No, you cannot consider any amount as LTP. If NSE is not displaying LTP, then it means there are no rates
available.
Reply

May 4, 2017 at 12:08 pm
Sir my query is not about the Differences between LTP and settlement price.
but the Difference between actual closing settlement price of CE 9300 = 38.45 which should be approx 42 as you
also said in your earlier first comment.
is there any other hidden tax or charges ????
after all Option settlement price should be (Intrinsic Value) = closing price – Strike price
Reply

May 5, 2017 at 7:15 am
No hidden charges as such. I’m guessing it gets adjusted with taxes, but I myself need to confirm this. Will get
back to you on it.
Reply

May 9, 2017 at 12:32 pm
Sir,
Waiting for your Reply, Hope you will Reply soon……
Thanks
Reply

May 10, 2017 at 5:49 am
Sure, I will get back as soon as I can.
Reply

May 23, 2017 at 1:51 pm
Sir, just a reminder, in case you forget …..

June 1, 2017 at 9:13 pm
Sir it’s Almost one Month in waiting for your Reply..

June 2, 2017 at 12:21 am
Arun, there cant be any difference. If spot closes at 9340, the 9300 CE will be settled at 40.
96. Waqaar says:

May 16, 2017 at 3:27 pm
Hi Sir,
I had purchased nifty50 9500 strike price at 39.67 (75 * 39.67 = 2975.25). The current LTP is 69(75*69=5175). So
my profit according to premium is 2200. But what will be profit if I exercise my call on expiry day incase nifty
touches 9600 with considering lot option in calculation. And how I will exercise my option in Kite ?
Reply

May 17, 2017 at 11:36 am
If you do not close your option position, then it is assumed that you are exercising the option. Upon expiry,
you will be profitable only if Nifty is above the strike + premium paid, which in your case is 9639.67. Any
price for spot below this, you’d end up losing money. Also, it does not make sense to hold the position till
expiry (unless it is really deep ITM) for STT purpose, check this – http://zerodha.com/z-connect/queries/stock-
and-fo-queries/stt-options-nse-bse-mcx-sx
Reply
Waqaar says:
May 17, 2017 at 1:03 pm
Hi Sir,
Yes, we should not let option to expire itself, we should exercise it, but how it can be done from Kite on
Web ?
And my position to be profitable it should be strike + premium:- 9500+39.67=9539.67, so suppose it

crossed 9600, so profit will be this 9600 – 9539.67 = 60.33 and with quantity in lot consideration so
calculation will be 60.33 * 75= 4524.75.
Reply

May 18, 2017 at 10:19 am
No no – point is, it does not make sense to hold on to an ITM option for STT reasons. If you hold
on to it till expiry, then it is implied that you are exercising it. Your breakeven point for a long call
option is Strike + premium paid, which in your case is 9600 + 39.67 = 9639.67.
Reply
anilmwr says:
June 11, 2017 at 12:21 pm
Hi Karthik,
If you read the first question of WAQAAR again, strike price was 9500. So breakeven point
is 9539.67.
If nifty reaches he will profit 60.33 per share.

June 12, 2017 at 10:30 am
You will start to make money once the spot price crosses the strike and also crosses the
premium you’ve paid. So for example if the call strike is 100, premium is 20, then the
breakeven is 120.
97. Gokul says:

May 19, 2017 at 6:05 pm
Dear concern,
I am very new to options as I have just started options trading I have some queries in my mind..hope u will answer
Sir if I buy nifty call option for strike price of 9550 at a premium of suppose 16 ruppes. And before expiry the
premium value goes to say 26 rupees whereas nifty rises to 8475 from 9410. So in this scenario my strike price is not
achieved but my premium went on rising … So can I enjoy the rise in premium by selling my position ? Can I get 10
rs proft for my positions?
Pls revert
Thank u
Reply

May 21, 2017 at 5:41 pm
Yes, you can close the position and enjoy the increase in premium. No need to wait till expiry.
Reply
98. ABINAYA says:

May 26, 2017 at 11:45 pm
hello,
so in the above case explained above(bajaj auto) ,call option buyer will exercise his right and ,minimize his loss to
1.35 rather than losing 6.35 right?
Reply

May 27, 2017 at 6:19 pm
This is just illustrating the fact that the buyer of a call option is taking a risk to the extent of the premium paid,
in this case the premium happens to be 6.35.
Reply
99. Ankit says:

May 27, 2017 at 6:56 pm
Hi karthik,
I have doubt regarding STT
On expiry day one sms is sent by Zerodha “STT cost is 25 times square off ITM contracts………. ”
Let banknifty spot is 23000, I buy 1 lot call option strike price 23100 (otm).
I forget to close my position and banknifty expires at 23200. in this case would I have to pay 25 times stt.
Reply

May 28, 2017 at 5:24 pm
Yes, if your option is ITM then you will have to pay STT. Check this – https://zerodha.com/z-
connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Reply
Ankit says:
May 28, 2017 at 10:37 pm
Still have confusion,

How ITM is considered, if at time of buying it is otm but nifty closes at higher value than strike price,
then would it be considered as ITM?
Reply

May 29, 2017 at 6:57 pm
A strike transitions into ITM or OTM based on the virtue of the movement of the spot price.
Reply
100. pramod says:

June 1, 2017 at 6:59 pm
can i sell call option and can i buy put option?
Reply

June 2, 2017 at 12:03 am
Yes, you can. By the way, did you know if you buy a call and sell a put, you are basically creating a synthetic
long futures position. Check this chapter for more info – https://zerodha.com/varsity/chapter/synthetic-long-
arbitrage/
Reply
101. Sudarshan Singh says:

June 4, 2017 at 7:00 am
In the Option Chain on NSE, IV is Intrinsic Value. In the example given for Bajaj Auto above, how the value 35.22
is derived for strike price of 2000 In CE at Spot price of 2026.9 ?
Reply

June 4, 2017 at 7:13 pm
The value of option premiums is market driven and is decided by the markets.
Reply
102. Tarun says:

June 29, 2017 at 10:00 am
Error : option strike price based on ltp percentage. Please help
Reply

June 29, 2017 at 11:44 am
Sorry, can you share more information please? Thanks.
Reply
103. Deepak says:

June 30, 2017 at 11:17 am
trying to put option order but getting following error

“exchg not enabled for this acct”
Reply

June 30, 2017 at 3:16 pm
Guess you need to enable FnO segment in your account. PLease do call our support for this.
Reply
104. Vishal says:

July 16, 2017 at 2:35 pm
Hi Karthik,
Very nice explanation, i have started treading in options. Thanks:)
When you are planning to have this in Marathi language.
Reply

July 16, 2017 at 6:16 pm
Happy to know that, Vishal. Good luck.
Not sure about Marathi yet
Reply
105. SANTOSH says:

August 19, 2017 at 11:44 am
Hi karthik
Thanks for sharing the basics of option trading. its really helpful for novice traders.
One question i have is lets assume that i bought a option (CE) with premium of 2.55 and lot size of 3750. i paid a
premium of ( 2.55*3750=9562.5).
But unfortunately it started falling down and assume current premium is 1. in this case i am currently experiencing a
loss of 5812 and if i square off i need to take losses. so the balance money which i get back in this case is 3750 from
exchange ( 9562.5-5812= 3750.5).
But in case if i hold till expiry date and let it get expired, i will lose 9562.50 along with other STT charges.
Please correct if i am wrong.
Thanks
santosh
Reply

August 20, 2017 at 12:09 pm
You will lose the entire premium if the option expires below the strike. If its profitable, then you will also have
to pay STT. Hence its always advantageous if you square off a profitable long option before expiry. More
details here – https://zerodha.com/z-connect/queries/stock-and-fo-queries/stt-options-nse-bse-mcx-sx
Reply
106. Vishal says:

August 30, 2017 at 5:45 pm
We can see top 5 bids and offer prices in zerodha. Is there any way where we can see all bids and offer prices?
Reply

August 31, 2017 at 10:07 am
Yes, please click on market depth.
Reply
Vishal says:
Hi Karthik,
Market watch shows only top five, I am looking for all offers & bids prices?
Reply

That is not available for now, Vishal.
Reply
107. Vijay says:

August 31, 2017 at 1:48 pm
Hi Karthik
Excellent series…just read one or two modules.
One question on what you mentioned above – “you will lose your entire premium if call option expires below strike”
Let us say I buy Nifty call option at strike of 10000 (current spot – 9800) at a premium of 1.5….now, let us say the
spot increases to 9900 (still under the strike), wont the premium go up beyond 1.5 due to IV being impacted due to
upward spot movement? And if the premium becomes 1.6 and even if spot < strike, I can sell the option at a profit of
1.6 – 1.5. Please advise if this is right?
Reply

Yes, you are right.In this case, you are trading the premiums and the P&L will be the difference between the
premiums.
Reply
108. Vijay says:

August 31, 2017 at 2:10 pm
A follow up ques Karthik,
Assuming one will not hold the option till expiry, one is basically impacted my movement on the premium in the
near term, which is impacted by greeks….in this case, can a decision to buy/sell an option contract (as you illustrated
above) still be based on basic anticipation of stock price movement?
I ask this because it would take long for someone to master all concepts you have covered across modules here so
should one wait till that time or trades based on stock price movements still work?
Reply

Yes, you can. In fact, most of the traders just trade the premiums and do not really hold the options to expiry.
Reply
Vijay says:
Thanks Karthik…so in simple terms,

1. can one simply trade premiums based just on underlying spot price movement?
2. do the premiums, mostly move in consort with spot price (assuming the expiry is far and time decay is
not very strong)?
3. how strongly does the spot price movement impact volatility or is IV factoring the future irrespective
of current spot price movement?
Reply

1) Yes
2) More or less, yes. However, you should be aware that there are other factors that will affect
premium
3) As strongly as the spot does, but with the element of time.
Reply
109. Sourav Ghosh says:

Let, I bought nifty call option(1lot) at a premium of Rs.50/- and sold that at a premium of Rs.60/- on any day before
expiry, I would make a profit of 10*75=750??
If so, then what is the advantage of holding an option till expiry(taken strike price hit before or on expiry)
Reply

Yes, you will make that profit. By holding till exiry, you are essentially giving your option more time….maybe
it can go from 70 to 80?
Reply
110. AJITH THOMAS says:

Is it not possible to buy real shares in demat account through option contracts ?
Reply

No, as of now the settlement is only in cash. No physical settlement in India.
Reply
111. Kiran Francis says:

I am a beginner in India what should we do to exercise option on expiry date. Will exchanges automatically settle the
profit amount above the strike price?
Reply

Yes, the exchanges will settle this for cash.
Reply
112. Shaili says:

Hello, Karthik.
Recently started reading options module. I have a query.
When the buyer of an option sells it (to gain a premium profit), after squaring off his position – is he free? Or does he
become an obligated writer of the option?
Reply

Yes, after closing the position you do not have any obligation as you are out of the market.
Reply
Shaili says:
Thank you, Karthik. One more thing.
While shorting a call/put option, the seller is compulsorily obligated to hold his position till expiry by
earning premium only or he can square off his position like the buyer can to change his profit/loss
scenario like shorting in futures.
Reply

He can square off his positions anytime he chooses to do.
Reply
113. Nancy says:

Hi,
Thank you for educating free of cost. Very few do it. I have a query.
When I try to buy a call option there are two options in Kite platform, Normal and MIS. I understand MIS is
intraday. So what is Normal? In equities, there are two options CNC or MIS. I always buy in CNC.
If I buy a call option today in Normal when do I get the delivery? Can I sell it on the same day if the price moves up?
( Sorry if the question sounds silly as I have never traded in options. Just trying to understand it)
Regards,
Nancy
Reply
Faisal Mohammed says:

October 13, 2017 at 10:04 am
When you buy an Option in MIS, the position is squared off at/after 3.20 PM. And if you buy using
NRML(Normal), you can hold the option contract till expiry, which is last Thursday of every month for Equity
Options.
There is no delivery for Equity Options in India and there will be a cash settlement on the expiry date.
Yes, you can sell the Option contract you bought under Normal also on the same day.
All order types are explained in the Kite User Manual in detail https://kite.trade/docs/kite/#product-types
Reply
Nancy says:
October 14, 2017 at 12:26 am
Thank you for your prompt response. Can you clear another query of mine. Say I bought shares of a
company at Rs 100 in CNC without putting any stop loss. After a few days the share price has reached
my target and I sell it. This needs monitoring the market everyday. Is there a mechanism wherein I can
tell the system in advance to sell the shares whenever it reaches my target say Rs 110?
Reply

Essentially you are looking at a feature called Price Alerts. Unfortunately, we do not have this
feature, yet.
Reply
Nancy says:
Okay
Nancy says:
Can I do this in SL or SL-M. For e.g In CNC segment , at the time of purchase of 100
shares @ Rs 200 I put SL trigger price as Rs 220. Does it mean when the share price
reaches Rs 220 the system will automatically sell the shares?

October 15, 2017 at 10:55 am
When you place SL, it is essentially a limit price. If you want it to certainly sell, then opt for
SL M.
114. Nancy says:

Thanks. In my above example, if I put SL-M price as Rs 220 and if the market price is Rs 190 will the order get
executed ?
Reply

October 16, 2017 at 11:04 am
Not really, it will sell at any price after the stock breaches 220.
Reply
Nancy says:
Thank you.
Reply
115. Tushar says:

Can you please explain the basis to select exercise price for options. Say I am bullish on a stock which is currently
trading at 100 rs. so at what exercise price should I purchase a call option ?
Reply

It is explained in the later chapters, Tushar.
Reply
116. eswar says:

October 21, 2017 at 10:44 am
sir
when niftyCE10200 26 oct 2017 reach to 0 what happen
Reply

October 21, 2017 at 12:22 pm
That means the 10200CE has expired worthless. Buyer loses the money and seller retains the premium
received.
Reply
117. Nirmal says:

can i place market order for buy or sell option?
Reply

October 31, 2017 at 11:38 am
Market orders is allowed only for Nifty and Bank Nifty. You need to place limit orders for stock options. If
you want to send this as a market order, then do place the limit at a price higher (if you want to buy) or lower
(if you want to sell). The order will get instantly if there is liquidity.
Reply
118. Ron Kalra says:

Hi Karthik,
I just want to know why the prices or deep in the money and deep out of the money are not displayed and traded. Ok
i will try to explain myself with example. Let’s say i want to trade options of cipla, and i want to go long ( buy a
naked call ). The closing price of cipla ( underlying ) on Friday was 640 and i’m intersted in buying a deep in the
money call which is strike price of 540. But when when i try to open the option chain for cipla in NSE website, all
the strike price below 550 till 450 have blank fields in it and show no data as if there is no trading going on all these
strike prices. I’m not able to attach picture ( snap shot ) of the option chain in this comment session but i will
appreciate if you can go to NSE website and see the option chain for Cipla and then you will understand my quesion.
My concern is what if i have a strategy of 2-3 legs where in i might have to buy/sell deep in the money options. How
can i buy/sell those deep in the money options. I’m new to options so maybe i’m asking you something very basic.
Even if i try to open the chart for these deep in the money option chain they don’t open.
Is the trading on options which are deep in the money or deep out of the money halted until the prices comes back to
those price levels. Also how are new option strike price generated. Let’s say with the same example if Cipla (
underlying prices ) goes up to 700, then what happens to strike price of 600 ?? and when and how will be strike price
option of 700, 720 strike price available ??
Not sure if i’m able to explain myself clearly but hopefully you get my question. I will really appreciate if you can
clear my questions about how option strike prices are generated and is it possible to trade deep in/out of the money
options.
Many thanks
Ron
Reply

Ron, the reason is simple, and you’ve answered it yourself
There is no one trading these options, hence no bid-ask…in other words, no liquidity in these contracts.
Reply
Ron Kalra says:

Hi Karthik,
Thanks for your reply. So what if in case i still have one of these option ( deep in/out of the money )
before expiry. How can i sell it ? For Example i have Cipla strike price 520 ( I’m long on this one ) and
now the stock is trading at 650. So what happens to my 520 strike price call option. How can i sell it if
there is no buyer ? What are my choices and what can i do in these situation.
Thanks again
Reply

The exchange has its own mechanism to settled all ITM options. In this case, you are entitled to
receive in cash Rs.130/- from the seller, which you will. OTM options expire worthlessly.
Reply
119. Ron Kalra says:

hi karthik,
sorry to bother you again, but can you please help me know what is good for day trading Futures or Options. I know
that it depends on person to person but if you don’t mind can you please let me know what is your preference if you
have to day trade ( options or futures ? )
Also, i will apprecaite if you can let me know few advantages and disadvantage of futures and options for day
trading.
many thanks
You rock and you help me make my decesions better.
Reply

Ron, it actually depends on liquidity. If the asset that you are trying to trade is liquid enough, then you can
easily place market orders and not really worry about loss due to slippage. Having said that, I have a tendency
to work with futures for intraday and options for overnight positions.
Reply
Ron Kalra says:

Thank you so much Karthik. One more thing how can i check liquidty of stock or future/options ?
Reply

Check section 9.2 – https://zerodha.com/varsity/chapter/nifty-futures/
Reply
120. ravi says:

sir i brought vedanta call option @320 strike price @the premium 11.60 now vedanta stock rate is 324 and premium
12.30 if i sell today can i get profit and how much?
Reply

You can sell it anytime you want. Your profit will be the difference between the price of the premiums… i.e
12.30-11.60 = 70 paise. Multiply 70 paise by the lot size to know your total profit.
Reply
121. Srini says:

Hi Karthik,
First, I want to thank you very much for doing a wonderful job. I have one doubt regarding ITM option.
Assume I bought one ITM option Nifty CE 9200 at 1068.70 when today’s spot price is around 10200. Total value
comes around 80152 (1068.70 x 75). Assume option is expiring at 10100. Total value will be 67500 (10100-9200) x
75. So it is a loss from the value when brought (80152) even though spot price has increased from 9200. Am I
correct on the above calculation or missing something here?
I checked randomly for ITM strikes (from deep ITM to slightly ITM). The total value when buying the option is
greater than the value when options are expiring (assuming my above calculation is right). Also, I have noticed there
are large premiums starting from 2000. What is the strategy behind holding those large premium options if on
expiration the total value is less?
Thanks and Regards,
Srini
Reply

Yes, that would be a loss. Remember, when you bought the spot was at 10200 and now it declined 100 points
to 10100. Along with the decline in spot price, there is also a loss in terms of time value. Both these combined
leads to a decline in option premium.
Most option strategies are around ATM and few strikes above are below these.
Reply
122. pratik says:

Sir, i have a doubt.
If i purchase call option with expiry of “28th December”i.e next month (too much safer side) assuming nifty will go
beyond 10500 (bullish perspective) with strike price of 10300 or 10350. Premium is around 160-175. Then what will
happen with my contract on this expiry (30th November)? May be i am confusing in basics only. Sorry in advance if
doubt is too silly.
And if i can continue with my contract after this expiry (30th November) and assuming premium goes to 250, then
what will be my profit?
Reply

Nothing really happens on Nov expiry, Pratik. The December options will expire on 28th December. If the
premium goes to 250, then you make 250-160 = 90 as profit.
Good luck!
Reply
pratik says:
Thank you Sir..
Reply

Cheers!
Reply
123. Sampath kumar says:

I want to know the basics like how to book profit/loss since the item is still not in my hand (account) ? or how to
exercise my agreement with the seller if I am in profit ? Do I need to make the full payment to exercise the trade ?
Please explain.
Reply

The best way to get to know is by actually placing an order
Reply
Sampat kumar says:

I see.
Reply
124. Ankur Agrawal says:

sir i need a information regarding option trading. if i buy something, for example: if i buy federal bank nov 110 ce at
4 rupees and then if it’s value increases to 5 or anything, is that possible to apply stop loss in case of option trading
because i tried but stop loss is getting rejected while i apply for options?
Reply
Ankur Agrawal says:

i want to track the profit actually.
Reply

If you are using Kite, then look at the P&L section, in Positions.
Reply
Ankur Agrawal says:

ok, is that we can’t apply SL in case of Options Trading. For the Target, we can only place either a
buy trade or sell exit trade and not SL?
Reply

You certainly can, Ankur. I’d suggest you give a call to support to understand the process.

Yes, you can get out of the option anytime you choose. No need to wait until expiry.
Reply
125. Ankur Agrawal says:

and one more thing, if i buy some option at the rate of rs 4 and the next morning at 9.15 i place a selling order at rs.
5….as options take some time to open and before it opens, my selling price will be there…if that specific option
directly opens at 6 then what price i will get in this case 5 or 6?
Reply

You will get it at 6.

Reply
Ankur Agrawal says:

ok, thank you
Reply

Cheers!
Reply
126. Mohan says:

Please clarify my doubt
I bought Bank nifty call option @25 strike price is 25700

But on expiry day it closing price is 12.75 but spot Bank nifty closed above 25736
Now what price is calculating for me profit or loss
Please explain
Reply

You paid 25 as premium but the premium has declined to 12.75, so you make a loss of 12.25.
Reply
Vijay says:
Hi Mr.karthik, I have doubt on this conversation,

Assume Mr. Mohan sold that stock option on the day of expiry ,then according to PL formula
(PL for call = (Spot price – strike price)- premium paid. Ie: PL= (25736-25700)-25 = 36-25 =11)) he
should be in profit of Rs.11/-
Why and How he was in loss ?
And on the day of expiry regardless of current premium ,PL formula works or not.
Or do we need to consider premium also.
Please clarify my doubt….
Reply

If you have sold an option and the option expires worthless, then you would retain the whole
premium! No loss here.
Reply
127. Laxmi Narayan says:

Sir,
How to place this order in zerodha
Tata Motor 400 option call CMP-30
Buy only above 32.50
Target 34/36/38
SL-28
Can I put this all in single order.

How can I put my order with above price compare to CMP??
Reply

You are essentially looking at buying above CMP and simultaneously looking at placing a target and SL order.
This is possible with something called as a Stoploss bracket order, the same will be available with the new
version of Kite, called Kite3.0.
Reply
Laxmi Narayan says:

Thanks
That mean this order will be as follows.
SL. BO
CMP 30
Price Box- 32.60
Target Price box- 3
SL-4.50
SLTP-1
My doubt this order on which price will execute CMP 30 or as soon as cross 32.60. That particular
amount 32.70
Thanks
Reply

Yes, although I think you will have to increase your SL.
Reply
128. Abdul says:

When will Zerodha enable SL-M order type for Options stock? How long it would take?
Reply

No market orders on stock options, Abdul. Stock options are still not liquid enough to absorb impact cost
shocks, given this market orders can be quite disastrous.
Reply
129. Bharadwaj says:

In case if the spot price crossed strike price before expiry. How does the square off works? And if the spot price
closes below strike price on expiry, I get nothing out of the contract?
Reply

You can just trade the premiums before expiry. For example, assume you bought a call option by paying a
premium of Rs.25 and now the same option is trading at Rs.35, you can choose the square of the position and a
pocket the difference of Rs.10. No need to wait till expiry.
Reply
Bharadwaj says:
As mentioned in the tutorial, we can square off the contract only if there is a buyer right? Example case
of Chirag Gupta, he unable to square off because there won’t be any buyers for that contract. Since the
spot price crossed the strike price there won’t be anyone who’s interested in buying it. What to do in this
case?
Reply

Yes, liquidity is essential when you trade options. So, always look for ample liquidity so that you
can buy or sell the contracts easily.
Reply
Bharadwaj says:
Ok, one more question, if I leave the contract which is under loss to let it expire, do I loose
complete margin? Or just the difference amount?

If you are a buyer, then there is nothing much you need to do. You can leave it and let it
expire.

Thank you
There is a lot more to know.
Reply

Happy learning!
Reply

Is it recommended to average out the contract if it is falling below the existing price?
Reply

Not advisable for one reason – in case the market or the stock goes down further, then your losses will mount.
Reply
Bharadwaj says:
OK, thank you.
Reply

Cheers!
Reply
132. Rohan says:

Hi
I want to ask that suppose xyz has 1.50 premium-CE , Q = 800

So i need 1200(800*1.50) to buy CE option ..
How much fund needed to carry forward position for 1 week ?

Do i need only 1200 to carry forward or .. need more ?
Thank you
Reply

You pay the premium amount i.e 1200 and can carry forward this position till expiry or you can choose to
square off the position whenever you want.
Reply
Rohan says:
Thank you sir !!
Reply

Cheers!
Reply
133. Vikash says:

HI,
Please reply.
I have 2 lots of 10500ce at 60/-

Market is around 10500. but LTP premium is 44/-
If the market closes around 10600 at the expiry.
Calculation would be like (10600-10500)-60=40
& 40*2lot (75qty)= 6000/- profit
Am i calculating correct or something missing here????
Reply

Yes, this is perfect.
Reply
Vikash says:
ok. now i understand the actual meaning of breakeven point. if i go with simple premium difference then
i am in loss of -16*150= -2400/- but excising the same at the expiry could be profitable of 6000/-
right sir?
Reply

That’s correct if you assume that market will reach 10600. If Nifty trades at 10500 only, your
premium will continue to fall.
Reply
Harsh says:
but remember, STT would be high if left to expire. calculation may looks like 0.125%*10500*(2*75)=1968
Reply
134. Sachin J says:

Sorry if this is already answered, pls answer if I brought an option as NRML today and if I want to sell it so can I
place a sell order , would that square off the position?
Reply

January 11, 2018 at 11:10 am
Yes, that would square off the position. Remember, you can buy and sell the option anytime you need, no need
to wait until expiry.
Reply
135. Dnyanesh says:

Hello Sir,
Query – If I buy an option and suppose it goes up by a lot. Now I have kept my trigger order for sell much above the
bid price. What happens to the option on day of expiry? Does it get automatically squared off? do I need to pay extra
money to exercise the option etc?
Kindly help!!
Thanks,
Reply

No extra money for option exercising. The option will get sold when your bid price matches the offer price.
Reply
136. jyotshna says:

If I buy call option of a strike price at say 2. so 75*2=150 I have to pay+20 as brokerage.
If I see on expiry day premium became 0.05, if I square off then I will get 75*0.05 = 3.75.
1.) Here again 20 will be charged as brokerage and also exchange related tax ?
2.) If I leave this I will loose all the amount, it is good to squareoff or let it expire ? ( leaving for expiry because of
brokerage and tax > total amount ).
3.) If lots are say 50 then 3.75*50= 187.5, how much brokerage for this ?
Reply

January 19, 2018 at 11:04 am
I think you should check this for the exact details – https://zerodha.com/brokerage-calculator . I’d prefer to
leave the option to expiry provided I’m convinced the option wont jump from OTM to ITM.
Reply
137. rohan says:

Hi sir
I have bought 10900 JAN18 NIFTY CE using NRML .

I want to square off my position now.
From Kite when I press exit button it asks how many shares to sell. If i press exit after that , will my position be
squared off
or I have to change to MIS for Intraday square off ?
Thanks
Reply
138. Ashish Gupta says:

Hi Nithin,
I have the basic but very important question for which I haven’t got the answer yet even after reading full options
chapter.
It is mentioned above that,

“the call option is supposed to make a profit when the spot price moves above the strike price”.
However even if spot moves by certain amount and haven’t crossed strike price yet, the premium also increases for
my selected strike. Can we book profit at this time(I am excluding premium paid,brokerage,tax for now).
E.g. Nifty spot at 11000,

Strike selected 11500 for Rs. 50.
Now if Nifty spot moved to 11200, premium for selected strike 11500 will rise to Rs. 150, let’s say.
Now there is a 300% return even if spot haven’t crossed strike.
I hope scenario is valid and realistic.
Thanks,
Ashish Gupta
Reply

January 30, 2018 at 11:46 am
Yes, you can book profits anytime. No need to wait till expiry.
Reply
139. Dheeraj says:

Statement 1: You can buy a call option now and sell it within few minutes if you wish…so exciting an option is not a
problem provided a counterparty is available.
Statement 2: Exercising of an option contract is the act of claiming your right to buy the options contract at the end
of the expiry. If you ever hear the line “exercise the option contract” in the context of a call option, it simply means
that one is claiming the right to buy the stock at the agreed strike price. You can exercise the option only on the day
of the expiry and not anytime before the expiry.
The second statement last line says that you can ONLY sell on the expiry date but the first statement says you can
sell at any time before as well.
i don’t understand the concept here. Can you please explain. Statement 2 is taken from the comments (by Karthik).
Statement one is from the Module 5 (Chapter 2).
Reply

These are two different things, Dheeraj. Exercising an option happens only the expiry day, however, you can
sell the option anytime you wish. Have explained this in several places under the comments section.
Reply
140. Anup says:

Dear Karthik,
in profit and loss table, for eg if Nifty option is bought at premium of Rs 45 if the premium increases to Rs 47, the
profit will be Rs 2 with brokerage charges, break even happens after brokerage charges are met, why do we have to
consider Intrinsic Value, and break even after the premium amount is met, please explain.
Reply

If you are trading the premium (as in buy and sell quickly), then only the change in premium matters. If you
hold to expiry, then intrinsic value matters.
Reply
141. Akshay says:

Can you tell the parameters of the studies in the Technical analysis of the first chart in this module?
Reply

Looks like a basic RSI, Moving average overlay on the price. I can also see volume chart at the bottom.
Reply
142. Emmanuel says:

Hi Karthik,
I had bought Auropharma CE, expiry 22-Feb-18 at strike 640 for premium 29.5 (lot 800). So I squared off my open
position when the underling was 575 and the premium was 0.45.
1. I am under the impression that if the trade goes wrong, as a CE buyer I will lose the entire premium ie, 800*29.5 =
23600
2. When I squared off my position, I received Rs 360, ie 800*0.45
3. In case I had squared off my position earlier, would I have still received the amount? For example, if I had squared
off my position when the premium was Rs 10, I would have received Rs 8000?
Thanks.
Reply

1) If you have squared off at 0.45, then you have lost the entire premium i. 23.6K
2) Yes
3) Yes – you will receive the difference between the buy and sell value of the premium.
Reply
143. Vidya says:

Hi, I have a query. Does Option pay-out work like Futures pay out too (end of day M2M principle) OR does it work
like equity payout (upon exiting the position only)?
Your help is greatly appreciated.
Vidya
Reply

No, there is no concept of M2M in options.
Reply
144. Rubal Shah says:

March 9, 2018 at 2:10 pm
Hi ,
I had bought PNB CE, expiry 28-Mar-18 at strike 110 for premium 1.90 (lot 4000).
1.I want to sell the CE before the expiry with premium of Rs. 3.5 . Will I receive the difference between premium
6400( 3.5-1.90)* 4000 at the time of selling the call option?
2. WHat if there are no buyers at the time of selling the Call option?
3. At the time of expiry is it compulsory for me to buy the market lot of the above share or else simply i can exit at
whatever would be the position at the time of expiry?
Reply

March 10, 2018 at 6:12 pm
1) Yes, you will receive the difference. Btw, congrats on the profitable trade
2) In this case, you will be forced to hold the option to expiry and wait for the settlement from the exchange
3) You can simply let it expire, but you will end up paying a huge STT. Its advisable to close all ITM option
before expiry.
Reply
145. Rubal Shah says:

March 9, 2018 at 2:56 pm
How much amount is required to buy a call option
Reply
Suman Chatterjee says:

March 9, 2018 at 4:03 pm
You have to pay price * lot size (minimum 1 lot ) = total premium amount
Reply
Rubal Shah says:

March 9, 2018 at 5:21 pm
price * lot size (minimum 1 lot ) = total premium amount
Price means premium amount per share or cmp of the share at the time of buying call option?
Reply

March 10, 2018 at 6:14 pm
Depends on the premium for the call option. Multiply the lot size with the premium and you will know the
money required.
Reply
146. shravan says:

March 15, 2018 at 9:21 pm
Hi,
I want to know how I can find a stock option which is going up or down in current market or one day before (there is
any screener or strategies to find out) pls guide me
Reply

March 16, 2018 at 11:35 am
That’s exactly what everyone would want to know my friend
Reply
147. RS says:
March 26, 2018 at 5:21 pm
HI If I am having a huge loss as a buyer of options CE, then does it make any sense to square off or should it let it
lapse.. for example purchase jet airways ce at Rs 24 premium , but the current premium is less than Rs 1. Is there any
additional loss if I dont settle.
Reply

March 27, 2018 at 11:15 am
I guess you have experienced maximum loss here, you will not have any further losses. Given this, you have
no advantage by selling the option, rather, you may as well hold and hope for some recovery.
Reply
148. RS says:
March 27, 2018 at 1:58 pm
Thanks Karthik, in this case basically i should wait for the expiry ie 28th march. Am i right on that
Reply

March 28, 2018 at 10:52 am
Yup.
Reply
149. VENKATESH says:

April 1, 2018 at 1:18 pm
hi karthik
assume i buy option of IOC Strike price 220 rate of premium RS 1.10 expire date on 28/03/2018 ,
end of the expire date no one seller remaning what happen then the premium amount
Reply

April 2, 2018 at 12:02 pm
Not to worry, the exchange will settle the trade on your behalf.
Reply
150. Kalyankumar Kulkarni says:

April 8, 2018 at 12:37 am
Dear sir/Mam,
In Call buy option once spot price move above the breakeven point profit stars and profit will be continued unlimited
up to expiry date, now my question is, if spot price come back i.e reversed and crosses the strike price (down side),
what will be the rate of profit/loss?
Reply

April 8, 2018 at 9:00 am
In such a case, the premium will also erode back. This really depends on the delta, have explained more on it
here – https://zerodha.com/varsity/chapter/the-option-greeks-delta-part-1/
Reply
151. Subhash Singh says:

April 30, 2018 at 2:09 am
Thanks a lot, for providing so much useful information. I learned a lot about options from comment section only.
Please clear my one doubt. Suppose I buy one lot in call option at premium of 10, strike price 300 and current price
is 280. one lot contains 100 shares.
A.Before expiry the premium goes up to 12 and i book my profit i.e12-10=2*1000= 2000.
B.But after that as you told above on comments reply that we have to exercise option on expiry, so my question is.
1. After booking profit as per point A i.e is of 2000, now at the day of expiry the price of share go below 280. At that
point did I loose something.
Reply

April 30, 2018 at 11:06 am
Subhash, after you sell or square off your position, you are completely out of the market. No need to worry
about expiry or exercising the options.
Reply
Subhash Singh says:

April 30, 2018 at 12:42 pm
Thank you very much, for clearing my doubt.
Reply

May 1, 2018 at 10:28 am
Welcome and keep learning
Reply
152. sravan says:

May 5, 2018 at 1:45 pm
Hi Sir,
A general question to u that
why the stocks like HCC,PC JEWELERS r moving so drastically more than 20,30,40%(UP&DOWN) in a single day
do they don’t have upper or lower circit limit ?
Plz clarify me.
thanks in advance.
Reply

May 5, 2018 at 4:08 pm
Sravan, they are moving because they are in news these days. There is a fundamental change in these
companies. Whenever such changes occur, such movements are quite common. Derivatives stocks do not have
circuit limits.
Reply
sravan says:
May 6, 2018 at 9:16 am
Thank you sir,

In the above comments u mentioned u r doing a webinar on options,have u done with that if yes plz
provide the link for that.
Thanks in advance.
Reply

May 6, 2018 at 8:51 pm
Here is one, Sravan – https://www.youtube.com/watch?

v=pVKfIxVw0Og&list=PLkxTRam6E2V_Kq5l-H4Xihh-nWgO6Z4d9&index=20
Reply
153. sai says:

May 16, 2018 at 8:21 pm
Sir,
is it possible square off in the money call option before expiry? i thought you can settle only on expiry day else one
get only premium difference?
how will profit calculated if square off before expiry day?
eg: i buy call option for rs 50 premium ,strike price 11000 ,lot 150, now spot price 11200,few days for expiry what
will my profit ? is it 150 *200 ?
Reply

May 17, 2018 at 10:12 am
Yes, you certainly can square off before expiry. No need to wait till expiry. To know your profit you just need
to take the difference between the price you paid for the option and the price at which you squared off. For
example, if you bought at 50 and sold at 75, then you make 25, of course, multiply this by the lot size.
Reply
sai says:
May 17, 2018 at 4:12 pm
Sir,
Thank you sir,i have 2 more queries,
1)is it wise to wait till expiry or squareoff before expiry for maximum profit when underlying moves in
your favour and in the money??
is high STT applicable now?
2) does premium become equal to closing price -strike price on expiry day if its in the money?If not
what would be premium on expiry day if spot price higher than strike price?
Reply

May 18, 2018 at 12:51 pm
1) This is really dependent on the situation, Sai.

2) The premium depends on the intrensic value of the option. Have explained more on this later.
Reply
154. ASHPAK says:

May 22, 2018 at 1:05 pm
SIR PLEASE GIVE MI VARSITY IN HINDI
Reply

May 23, 2018 at 2:54 pm
We will try and translate this.
Reply
155. swamy says:

June 7, 2018 at 5:27 pm
Sir,
I’m new to OPTION and my question is like below,
What is happening to my account , when i forget the buying of below CALL OPTION and check my account on 15th
JULY
NIFTY JUN 8100 CE @ 31.30

at expiry nifty reaches 8250
Reply

June 8, 2018 at 12:17 pm
The call option has expired ITM, hence you will make a 250 – 31.3 = 218.7 minus all the applicable charges.
Reply
swamy says:
June 8, 2018 at 3:59 pm
Noted Sir,
So on the time of expiry its not require to close the trade…NSE(ZERODHA) will automatically close
the trade and send the profits to my account…isn’t it ?
Reply

June 9, 2018 at 6:37 pm
Yes, you can let the position expire.
Reply
156. Ashish Kadam says:

June 8, 2018 at 7:07 pm
Dear Sir.
I f I want to sell any CE or PE in advance what is the premium required?

eg. If today I want to sell the Bharti Airtel June 370PE whose premium is Rs 6.95 and lot size is 1700 Nos. And
Price in a cash market is 377.55 how much money is required to take this position?
Reply

June 9, 2018 at 6:44 pm
You collect the premium when you write options, against this, you deposit a margin. The margin is similar to
the futures margin. You can check the exact value here – https://zerodha.com/margin-calculator/SPAN/
Reply
157. Javid Ishraque says:

July 25, 2018 at 6:12 pm
Hi,
Just wanted to ask. If I purchase a LEAP with expiry on 2023 for nifty. Can you tell me what will be the liquidity
like when I try to sell it sometime on 2023. Will I face problems because most likely by then it will be very very in
the money.
Reply

July 26, 2018 at 2:30 pm
I hope at least by 2023, the liquidity in Indian markets would have improved
Reply
158. anil nebhani says:

July 25, 2018 at 9:37 pm
hi my question posted here deleted …dont know how… i want to ask .. suppose a stock is running at 200 and i want
to buy it when it comes at 205 …. for that if i am not able to monitor the screen regularly .. then how to do that …
which thing i have to set so that when price comes at 205 it will execute my buy.Because in SL-M case it buys
whatever price it is getting at that time .. no control of buying on exact 205…. Please resolve my query i am facing
this issue ……
Reply

July 26, 2018 at 2:51 pm
For this you need Good till cancel order, we should have this order type soon.
Reply
anil nebhani says:


July 26, 2018 at 2:51 pm
For this you need Good till cancel order, we should have this order type soon.
¶
you need good ? means?
Reply

GTC = Good till cancel. This means the order is valid until it has been canceled.
Reply
159. Ansh says:

Hello,
In options you cannot close positions before expiry so how come the OI at many occasions is negative? What does it
imply?
Ansh
Reply

August 3, 2018 at 10:28 am
You can close the position anytime you wish, Ansh.
Reply
Ansh says:
Hello Karthik,
This is from page 13

Here is an important point to note – you can
exercise the option only on the day of the expiry and not anytime before the expiry.
Hence, assume with 15 days to expiry one buys ITC 340 Call option when ITC is
trading at 330 in the spot market. Further assume, after he buys the 340 call option,
the stock price increases to 360 the very next day. Under such a scenario, the option
buyer cannot ask for a settlement (he cannot exercise) against the call option he
holds. Settlement will happen only on the day of the expiry, based on the price the
asset is trading in the spot market on the expiry day.
Ansh
Reply

Yeah, exercising an option is different from selling an option. You can sell an option anytime you
want but you cannot really exercise anytime time. To exercise you will have to wait till expiry.
Reply
Ansh says:
Thanks Karthik. so, if I am a call buyer (Index/European option) sitting on good profit may
end the contract before expiration, only if the other party is ok with it.However if the other
party is not interested then I can exercise on the day of expiry. In case of individual
security/American options I can exercise my right before expiration. Is this correct?
This is from NSE website
https://www.nseindia.com/content/press/prs_derivatives.pdf
Further the Options are classified based on type of exercise. At present

the Exercise style can be European or American.
American Option – American options are options contracts that can be
exercised at any time upto the expiration date. Options on individual
securities available at NSE are American type of options.
European Options – European options are options that can be
exercised only on the expiration date. All index options traded at NSE
are European Options.
Options contracts like futures are Cash settled at NSE.

August 5, 2018 at 10:35 am
The buyer of the option has a right, Ansh. No need to think about the counterparty. Apart
from that, everything else is right.
160. Manas Pandey says:

Dear sir, i have observed something very important, rather strange. Since the break even is said to be = Strike Price +
Premium Paid, so let’s suppose that i buy a long call at strike price 11200 at a premium of suppose 200. So break
even should be 11200 + 200 = 11400. So i opened the zerodha brokerage calculator & entered 75 in quantity, &
11400 in Buy price. Now theoretically even if nifty increases 1 point that is 11400+1 = 11401 i should have some
profit but it’s showing a Loss of 1486.27 ,
Infact it is showing loss until nifty reach at 11421, whole 21 points more than break-even, so shouldn’t the actual
formula would be Strike Price + Premium Paid + Brokerage exp. (stt, gst etc.)
Reply

August 9, 2018 at 12:48 pm
Manas, the brokerage calculator shows the P&L based on the premium. It does not consider the strike. The one
that you have explained is based on the strike price.
Reply
Manas Pandey says:

Sorry sir, i didn’t get that. Can you please explain it with the above figures..
Like suppose i buyed a long call at strike 11200 by paying a premium of 200 & afterwards it goes up to
11300. Then what should i enter in the calculator as Buy Price, Sell Price & quantity ( if lot size is 75 )
Reply

Let’s say you bought 1 lot of Nifty 11200 option by paying 200 as premium. Now Nifty hits
11400 and you sell this option for 430. You have to enter 200 as your buy price and 430 as your
sale price. Don’t consider the strike prices (this is wrt the brokerage calculator).
Good luck!
Reply
Manas Pandey says:

Thank you sir for your time ?

August 10, 2018 at 12:43 pm
Welcome, Manas!
161. SHyam says:

Hi SIr,
I have heard about traders doubling their money after 2.30 on expiry day trading. As i was bullish on bank nifty
today i tried placing a 28500 call @0.80. The order was rejected and I got this message.
RMS:Rule: Option Strike price based on Ltp percentage for entity account- across exchange across segment across
product
Can you advice what went wrong. I could see huge volumes being traded. But I was unable to do this through
zerodha.
Reply

August 10, 2018 at 12:59 pm
Shyam, your order was blocked because we have restricted trading on OTM strikes on and near expiry. Check
this article for more information
Reply
162. Manas Pandey says:

Dear sir, sorry to bother you again but it’s very confusing when just starting out with options. Today i saw ATM
strike 11450 at a premium of 134.6 at 3:16pm. Now suppose if i go long in it & nifty increases some points &
premium stands at 146 then can i square off & earn the 10 X 75 (lot size) = 750 profit or it will be possible only after
when the break even is breached ( 11450+134.6 = 11584.6 )
Reply

August 10, 2018 at 12:57 pm
Yes, you can square off the position anytime you wish.
Reply
Manas Pandey says:

August 10, 2018 at 1:11 pm
Sir, i actually meant that will i earn that profit also, or it would be a loss as strike price is not breached ?
Reply

August 10, 2018 at 2:14 pm
Manas, if you sell the option then irrespective of where the strike is (pre-expiry), you will receive
the profit.
Reply
Manas Pandey says:

August 10, 2018 at 2:51 pm
Thank you so very much for your time sir. Sorry to bother you again & again.

August 11, 2018 at 5:32 pm
Not a problem, Manas. Good luck and happy learning.
163. rajesh says:

August 11, 2018 at 5:13 pm
hi
subject: need clarity
i buyed cipla call option strick price 320 aug 30 expiry

how to sqareoff
do i need margin to sell call option that i already broght
thanks
Reply

August 11, 2018 at 6:04 pm
No margin required. Goto the positions tab in Kite, select the position, and click on exit. This will square off
the option. If this is your first time, I’d suggest you call our support desk, they will be happy to walk you
through this.
Good luck with the trade.
Reply
164. Abhi says:

August 16, 2018 at 8:48 am
Dear Sir,
I have a query on buying a CE and below is my query:-
Lets suppose, infosys spot price today is 1408 and there are strike price available of 1390 and 1420. premium
respectively are 25 and 15 Rs. what is the significance on profit if i buy 1390 CE by paying 25 rs premium and infy
spot price starts going up and if infy start going down
Regards
Abhi
Reply

August 16, 2018 at 11:13 am
There is no straightforward answer to this because there are multiple factors which influence the premium
The % profit will be higher in 1420CE assuming there is more time to expiry. If the time to expiry is short,
then 1390 CE would be better.
Reply
Abhi says:
August 19, 2018 at 12:27 am
Appreciate your response,

consider we are on 20th and i am expecting to dilute my position on the day of expiry. considering the
formula that is “P&L = Max [0, (Spot Price – Strike Price)] – Premium Paid” . If strike price is 1390 and
spot price goes up to 1430 or 1440 . My profit will be
In case spot price is 1430 => Max[0, (1430-1390)] – 25=15* Lot

In case spot price is 1420 => Max[0,(1420-1390)] – 25=5* lot
and
now considering strike price is 1420 and in that case, loss will be “Max[0,(1420-1420)] -15 = 15”
now considering strike price is 1430 and in that case, loss will be “Max[0,(1430-1420)] -15 = 5”
Is my calculation above correct? In case the above is correct then in the money call of 1390 is more
profitable ?
Regards
Abhi
Reply

August 19, 2018 at 10:34 am
Abhi, this is for a Long PUT option, right? If yes, its correct. Thanks.
Reply
Abhi says:
August 19, 2018 at 5:36 pm
No Kartik, above example i stated for long call, when spot price was 1408 i took in the
money call option and purchase 1390 CE.

August 20, 2018 at 11:50 am
My bad, I meant Long Call
This is the intrinsic value of a call option, upon expiry.

P&L = Max [0, (Spot Price – Strike Price)] – Premium Paid
165. Varun says:

August 19, 2018 at 9:40 pm
Sir is the closing price of current day would be the buy price for next day in a call option ? I mean that today i buyed
a call option paying premium of 75 & it reached to 91 but i didn’t sold it as i was bullish on nifty. But the next day
91 was shown as my buy price & i was incurring a loss as premium went under 91 & not under 75. Why is it so ?
Reply

August 20, 2018 at 12:35 pm
Varun, is this on Kite? Can you contact our Support Team? This shouldn’t have occurred, we’ll get it fixed.
Reply
166. prakhar says:

August 23, 2018 at 10:27 pm
just curios to know how does option market work in usa.Does it provides European syle option contracts same as nse
or something else.
Reply

August 24, 2018 at 3:31 pm
I think the options are American in nature
Reply
167. RANITT says:

August 29, 2018 at 11:45 am
Hi Karthik Rangappa,
I checked today option chain (Underlying Stock: PFC 82.65 As on Aug 29, 2018 11:35:53 IST)
where the IV for strike 80 CE is showing as 105.79. what does it mean? as per my understanding it is supposed to be
Max(0, Spot -strike) ie. ~ 2.65
why it is 105.79 what will happen if the buyer excercise the option tomorrow (assume spot remains 82.65) ?
Reply

August 29, 2018 at 11:57 am
Ah, IV, in this case, is Implied Volatility and not intrinsic value.
Reply
RANITT says:
August 29, 2018 at 2:10 pm
Oh.. Thanks for the clarification..
Reply

August 30, 2018 at 8:25 am
Good luck, Ranitt.
Reply
168. RANITT says:

August 29, 2018 at 2:18 pm
Hi Karthik Rangappa,
One more doubt.. for ex I buy few lots of call option. what will happen to this contract if there is no buyer for trading
till expiry?
won’t I be having any chance other than exercising option or loosing the premium?
Reply

August 30, 2018 at 8:26 am
If the contracts expire ITM, the exchange will settle it for you. Else it will expire worthlessly.
Reply
169. Prashant says:

August 31, 2018 at 5:34 pm
Hi Karthik,
Firstly would like to congratulate you on the great work you’re doing.
I bought a Piramal Enterprise 3000 call option for September expiry. Now my concern is that all the calls above this
price are liquid and moving but this call is not moving – its pretty illiquid, there were only 3 lots traded today –
I don’t understand how this is possible. Also should I hold this or exit it at whatever price (its out of the money –
simply coz its illiquid even though the stock price has moved) – Do these kind of options become more liquid at the
time of expiry?
Please advise.
Reply

Prashant, this is quite common. Stock options do tend to get illiquid. There is no guarantee that they get liquid
towards expiry, but generally speaking, there will be some liquidity coming in towards expiry.
Reply
170. Pritam says:

sir, lets consider a scenario that banknifty is at 28000 (spot price). Now i buy a weekly banknifty call option at the
strike of 28300. i buy say 1 lot (40) at Rs. 40. Now as per the above calculation if banknifty doesn’t go above the
strike means that means i will make loss of 1600 rs. but thats not happening. If price goes above 40 then i will make
a proffit. can u explain this litle bit.
if my question is seems idiotic then forgive me. I am a novice in stock market. This chapter create some confusion
about banknifty weekly option trading which is not getting match with what i did so far. please explain.
Reply

Yes, you will make a profit only if the premium price goes above 40. It is like buying a stock, you make
money only if the price goes up beyond your purchase price. Btw, please feel free to ask your questions here,
this platform is meant for all of us to learn.
Reply
171. P.Kumar says:

Sir,
I am having a query about strike price.

Today Yes Bank closed at Rs. 317.50.
What are the repercussions, if I buy 27SEP2018 options at lower than today’s close price.
For example, 27SEP2018 Rs. 310 Strike Price Option is being quoted at Rs. 14.80 at the end of the day.
What will happen if I buy this option on 27 Sep 2018

(a) If the stock price moves up to say Rs. 340 (better than today’s price of Rs. 317.50) . While buying options, I have
assumed that stock price goes down to Rs. 310
I request you to clarify on this point.
Reply

You will have to tell me which type of option you are buying, call or puts
Reply
172. Pardeep kumar says:

If i short sell nifty futures in the futures market than can i hedge my position by buying call option. if yes than at
what strike price it should be bought.
Reply

Yes, you can. Remember to hedge a futures position with options, you will have to short options in such a way
that the deltas add up to 1, since the futures delta is 1.
Reply
173. Anmol says:

I wish to enter options trading, i have a query if you could help,

Southbank result are near
Currently trading at 12
Its oct 16 Call option is at 33141@0.15
Now if i buy this and premium goes up to 0.25 but spot price of the option does not cross 16 . Will i make a profit by
selling it at 0.25?
Ie 3314.1
Reply

October 12, 2018 at 12:06 pm
Yes, you will make a profit if you manage to sell @ 0.25.
Reply
174. Yuvaraj says:

October 17, 2018 at 11:21 am
Hi,
I could see, the premium price is moving negative for same strike price both in call buy CE and Put buy PE. For
instance infy on 17th Oct around 11 am,strike price 720 both CE and PE permium are trading lower. What does it
implies.
Reply

It just means that the option premiums are cooling off with the reduction in volatility.
Reply
Yuvaraj says:
My understanding is for particular strike it should be either bullish or bearish. How come both goes
negative. Can you please elaborate the term permium getting cooling off. I didn’t get it.
Reply

Volatility drives the premium higher. Higher the vol, higher is the premium. So when the volatility
cools off, the premiums also cool off, and this is applicable to both calls and puts.
Reply
175. Saikat says:

Sir, Today (24.10.2018) i want to buy SBIN nov 360 ce @ RS.0.10. Bid is taken by system of kite and also market
price was Rs.0.10 too.
But not executing.please why it is happening? it is not rejecting but pending how?
sbin current price was 256
Reply

October 25, 2018 at 11:48 am
Saikat,
Check the Marketdepth for the scrip. Although the LTP was 0.1, there might not have been sellers at 0.1, your
order will get executed only if a seller wants to match your price.
Reply
176. Devarshi Dave says:

How the ltp and strike rates are defined/calculated?
Reply

LTP is market driven, strikes are decided by the exchange based on the price movement.
Reply
177. Dheeraj says:

Hi Karthik,
In this module you mentioned if market will go up and the Spot price is above the Strike price at expiry, Call Option
Buyer makes profit. Moreover, P & L statement would be difference of (Spot Price – Strike Price) – Premium. If
there is a difference of 40 Points in Nifty (High) on expiry, is the profit for Call Buyer : 400 * Lot Size.
Regards,
Dheeraj
Reply

The profit will be 40*75*number of lot.
Reply
178. Ajeet says:

Hi Karthik,
I have completed Module 5 and revising it again to clear all my doubts. I have a doubt here. Before buying/writing
nifty option i like to check the volatility so that i can get a range. Assume i am bullish on the market and plan to buy
11600CE and based on my plan which volatility should i take into consideration? Is it the IV of the NIFTY or India
VIX or is it the IV of 11600CE?
Hope i am not confusing!
Thanks,
Ajeet
Reply

Ajeet, just for Nifty you can consider the ViX. For individual stocks, you can consider the historical volatility.
Reply
Ajeet says:
Noted. Your advise will help me indeed to plan the trade. I also wanted to thank you for the work that
you have been doing through versity teachings and I wish you achieve success in all your endeavors.
Thank you again for the quick reply.
Thanks,
Ajit
Reply

Thanks for the kind words, Ajeet. Happy reading and good luck!
Reply
179. Shyam says:

Hi kartik sir,
1.Yesterday one of my colleague bought OTM bank nifty 26700 ce for 11/– and the price today went upto 280-290/-.
Now I recall you had written about effect of theta how premium starts decaying and becomes worthless on expiry
day trading. As such I avoided this trade . Also max pain was at 26300 .
2.Now I was also monitoring the 26900 strike. i was surprised to see premium rose till 100 odd rupees and it started
falling and closed at 27/- at the end hour? How did this happen when the bank nifty underlying price closed at 26939
Where did I go wrong in my analysis? Also india vix rose after 2 pm. Doesnt this mean the premium should be
falling ?
Reply

Shyam, there is a lot of speculative activity on Bank Nifty, weekly expiry. People buy these options like lottery
tickets. Is this sustainable? I’m not sure. You may luck out a couple of times but overtime buying options on
expiry day and hoping to get lucky is not a great strategy according to me.
Reply
Shyam says:
Hi Sir,
Thanks for reply
But kindly advice why premium for 26900 fell when underlying closed at 26939?
Reply

It accounted for the STT value, Shyam. For bank nifty its roughly 32 points.
Reply

Shyam, there is a lot of speculative activity on Bank Nifty, weekly expiry. People buy these options like lottery
tickets. Is this sustainable? I’m not sure. You may luck out a couple of times but over time buying options on
expiry day and hoping to get lucky is not a great strategy according to me.
Reply
180. Subrata says:

Can you explain why the strike price of 2000 was not selected. I understand that the premium paid is much higher ,
but the break-even is at a lower level which is closer to the present spot price?
Reply

Subrata, if the premium paid is higher, then the breakeven should be further right?
Reply
181. Naveen says:

Hi, new to trading world. Sorry if the question is stupid.

Reliance is currently trading at 1100. It seems highly unlikely that it will breach the 1000 mark.
So if i buy the 1000 CE (108 premium) and hold it till expiry, and say it ends up near 1070 on expiry, will i make any
profit?
Reply

It depends on how much premium you have paid. Suppose you pay 108, and the spot expires at 1070, then the
premium will be 70. So you’d make a loss because, for an op[tion worth 70, you have paid 108. You will make
a profit, only if the option is worth more than 108, which means the spot has to be 1108 or more.
Good luck.
Reply
182. Chirag I Sharma says:

Please confirm if my understanding is right-
If today on a 200CE of Yes Bank, premium is 8 and market price is 194, then people who are paying 8 premium
are expecting by the end of expiry that the market price will be greater than 200+8=208 ?
Reply

January 15, 2019 at 11:35 am
Thats right, upon expiry their breakeven price is 208. However, the premium can go higher before expiry and
the buyer can exit if he profitable.
Reply
183. SUHAS says:

Hi Karthik,
I am new to Option theory. What I would like to know is I am planning to do only Intraday trade with Options. So
Can i do so the same like just buying Calls and selling the same on intraday depending up on the increase or decrease
in Premium value?
Reply

January 30, 2019 at 11:18 am
Suhas, frankly I think its best to stick to futures for intraday as opposed to options. Options are best suited
when you can give it some time because it has multiple factors (option greeks) influencing the option
premium.
Reply
SUHAS says:
Good. But as you said in the middle of Options theory chapters, there is a possibility of making profit
due to intraday change in the premium value of options
Reply

Yes, of course! But chances are higher when you give it time
Reply
SUHAS says:
January 31, 2019 at 11:13 am
Thank sir

Welcome!
184. SATPAL says:

SCRIPT ” INDIGO
LOT SIZE TOTAL PREMIUM PAID
PE STRIKE PRICE 1,180.00 PREMIUM PAID FOR PE 10.40 600.00 6,240.00
TODAY CLOSING PRICE 1,074.40 PE CLOSING PRICE 11.55
Possible value Premium paid instric vlaue LSIZE P&L

1,180.00 10.40 – (10.40) 600 (6,240.00)
1,175.00 10.40 5.00 (5.40) 600 (3,240.00)
1,170.00 10.40 10.00 (0.40) 600 (240.00)
1,165.00 10.40 15.00 4.60 600 2,760.00
1,160.00 10.40 20.00 9.60 600 5,760.00
1,155.00 10.40 25.00 14.60 600 8,760.00
1,150.00 10.40 30.00 19.60 600 11,760.00
1,145.00 10.40 35.00 24.60 600 14,760.00
1,140.00 10.40 40.00 29.60 600 17,760.00
1,135.00 10.40 45.00 34.60 600 20,760.00
1,130.00 10.40 50.00 39.60 600 23,760.00
1 WHAT I HAVE TO DO IF THE PRICE IS BELOW 1180

2 DO I NEED TO CLOSE MY POSITON MANUALLY .
3 AS I KNOW IF I CLOSE MY POSTION MY SELF SO I WILL GET PREMIUM DIFF.
4 WHICH ONE WILL MORE PROFITABLE A PE value which I don’t know what will at diff price.
5 PLEASE DO NEEDFULL, AS I TAKEN THIS TRADE FOR MY FUTURE REFRENCE.
6 AND I KNOW MY MAXIUM RISK IS 6240, BUT DON’T KNOW WHAT WILL HAPPEN PROFITABLE
SIDE
Reply

Satpal, I find it hard to figure out the table here. Maybe put it on Google drive and share? Also, if you follow
the excel construction used in the chapter, you will get the flow yourself.
Reply
185. vikash says:

I bought 1 lot nifty option call11200 at 60 premium, My queries are below.

1. If i buy one more lot with same strike price but premium 38, then it will show average value in position ?? ex: 2
lot avg premium (60+38/2=49 premium) right ??
2. If i buy 1 lot with different strike price ex: 11300 & premium 50; then it will show average value or different
position ?
Pls clear my doubts.
Reply

1) Yes, that’s right

2) Different strike, different position.
Reply
vikash says:
Thank you so much Karthik….
Reply

Welcome, Vikash!
Reply
186. Swithin says:

Thanks a lot for the information. Can you please answer one question: On zerodha how do I search for options? Say
a call option of 10500 strike price expiring on 28th feb?
Reply

Swithin, on Kite;s marketwatch, search for ‘Nifty 10500 CE/PE’ and you will find it easily.
Reply
Swithin Kunder says:

Thanks a lot for such a quick reply Karthik, much appreciated. Just one more thing, when I’m searching
for it, it’s not showing me 10500 call expiring on 28th feb, why is that so..it’s just showing 21st feb
expiry..also when placing the order, doesn’t it show the live rates on top like other platforms do? thanks
once again for your support
Reply

It must be showing the weekly expiry option, scroll down and you will find the monthly expiry
option.
Reply
187. Srinathjayanna says:

Sir,
1.what is atm,itm,otm since you have used these words in the comments section so many times.
2.And should we place the stop-loss on strike price or premiums.

3.For initiating a trade in options should we look at options chart or futures chart for price action.
Reply

1) Explained here – https://zerodha.com/varsity/chapter/moneyness-of-an-option-contract/

2) Ideally, it should be on the spot price
3) Spot chart, if you ask me
Reply
Srinathjayanna says:
Sir, but for for index there will not be volume confirmation on spot.
Reply

For index, you can check the futures.
Reply
188. vishwadeep verma says:

March 13, 2019 at 12:55 am
HI.
very easy explanation. Makes understanding all the more interesting. Thank you for the same.
At the same time, I see that at a when the spot price is less, the premium paid is substracted, where as when the spot
rice is more, the premium is added. Can you please explain the same in more details ??
Vishwadeep Verma
Reply

March 13, 2019 at 11:21 am
I’m not sure I get the context here Vishwadeep, can you please elaborate?
Reply
189. vishwadeep verma says:

March 13, 2019 at 12:58 am
How can we attach screenshots from NSE if we have to understand something from the option chain ?
Reply

March 13, 2019 at 11:25 am
You can upload it on Google drive and share the link.
Reply
190. jake says:

March 15, 2019 at 11:36 pm
Can someone explain the meaning of all the columns present in the screenshot of the excel file?
Reply

March 16, 2019 at 4:57 pm
Which excel are you reffering to, Jake?
Reply
jake says:
March 17, 2019 at 2:53 am
I am referring to the snapshot of Bajaj Auto’s option chain given the article, having columns like ltp, bid
ask strike price etc…
Reply

March 17, 2019 at 9:55 am
Jake, I’d suggest you look at section 9.3 onwards in this chapter –
https://zerodha.com/varsity/chapter/the-trading-terminal/
Reply
191. suresh says:

March 19, 2019 at 12:12 pm
2 days back opened zerodha account.

I have added 4000 funds to the account and tried to purchase banknifty 20 lot at 60 ptice, order is getting
REJECTED. Tried many times with others as well. Can you please help me to place the order?
Reply

March 20, 2019 at 11:02 am
You need to have a little over 4000 to adjust for charges. I’d suggest you use this brokerage calculator to figure
out the charges applicable – https://zerodha.com/brokerage-calculator
Reply
192. Raju says:

March 28, 2019 at 8:04 pm
Hi i brought a call option ICICIPRULI 350CE, this has been expired ATM.. what will be the impact.
Reply

March 29, 2019 at 12:17 pm
ATM and OTM options will expire worthless, Raju. So there is no value to it.
Reply
193. Harsha says:

March 29, 2019 at 8:44 pm
What is the max limit(no of lots) to buy nifty index options per trade.
Reply

March 30, 2019 at 7:59 am
I think it is 100 lots per order.
Reply
Harsha says:
April 15, 2019 at 9:02 pm
Thanks for you reply Karthik. One more question, I know there is brokerage calculator in Zerodha to
calculate brokerage for Nifty options. I have confusion about that. Can you let me know in the
calculator, do I have to input the no.of lots or total quantity to calculate brokerage? Please let me know
the brokerage for Nifty options for 50 lots (50*75) in Zerodha?
Reply

April 17, 2019 at 11:55 am
That would be the quantity, so in this case, it will be 50*75.
Reply
194. PANKAJ says:

April 5, 2019 at 6:49 pm
Please define term

1) Exercsing Option
2 ) Square off option
Please use simple language so that I can understand the difference between them
Reply

April 6, 2019 at 1:12 pm
1) When you hold a profitable option to expiry, then its called exercising.
2) Square off is when you close a position before expiry
Reply
195. PANKAJ says:

April 7, 2019 at 12:46 pm
Suppose I square off my position before expiry

Then can I say I also exercise my position
Reply

April 8, 2019 at 11:37 am
No, if you square off before expiry, you cannot exercise. This was possible with American option though…but
NSE changed all contracts to European options few years ago.
Reply
196. harsh says:

April 9, 2019 at 3:39 pm
in the above example, bajaj auto option,

spot price is 2026.9.
1. i buy call of 2200, i need to pay (125*.85) 106.25 and brokerage right?
2. spot price comes to 2150, what will be value of my premium? if a. 20 days are left b. 2 days are lefft? approximate
please so that i can get a bit clear. (do i make profit if stock doesn’t go till strike price)
3. how to square off my position? do i need to sell? do i require margin to sell while squaring off?
4. what is exercising position? will it get sold automatically?
Reply

April 10, 2019 at 11:14 am
1) Yes, that’s premium plus the applicable brokerage and charges. For the exact details, you can check this –
https://zerodha.com/brokerage-calculator
2) Hard to point the exact premium value, but you’d have incurred a loss here though
3) You can goto the positions tab and click on exit to square off. No need for margins when you sq off the
position
4) Yes
Reply
harsh says:
April 10, 2019 at 12:38 pm
So i make profits only when strike price is hit?
Reply

April 11, 2019 at 10:49 am
Yes, but if there is ample time to expiry, then you will experience a profit even before it hits the
strike.
Reply
197. harsh says:

April 10, 2019 at 12:40 pm
I find a very volatile stock. its at support price and can move up or down very quickly. if i buy call option and a put
option, will it be profitable if stock moves in any direction? risk is limited to amount invested in buying call or put
right?
Reply

April 11, 2019 at 10:55 am
Thats right. I think you are talking about a long straddle strategy. Check this –
https://zerodha.com/varsity/chapter/the-long-straddle/
Reply
harsh says:
April 11, 2019 at 11:05 am
ohh thats a strategy. thanks for prompt reply. your work is appreciated.
Reply

April 11, 2019 at 11:26 am
Good luck!
Reply
198. Santosh says:

April 10, 2019 at 9:54 pm
Today I wanted to buy option BANKNIFTY 1th APR 29500 PE @ Rs.20 but order got rejected giving reason Strike
price is outside the allowed range. Try strike closer to spot price. When I google it, I found that it’s because
ZERODHA might be having OI of Rs.500 crores or 15% of the total OI. Does it mean I wont be able to buy option
of my choice if ZERODHA is having more OI in market. Is there any way I can buy option without restriction of
ZERODHA OI and at what price.
Reply

April 11, 2019 at 11:21 am
Santosh, yes, unfortunately, this is true. We do have OI restriction around weekly Bank Nifty expiry.
Reply
199. Nandish says:

April 18, 2019 at 12:14 pm
Hi, I want to buy YESBANK 250 CE(current value is 256) as of today at a premium of 11rs and the quantity(1750)
on APR 18th
1. If the price becomes 268 on 25th APR can I sell it? or should I wait till the month expires? will I incur profit or
loss?
2.What happens if I sell in a CE option? or buy in a PE option?(can you give an example)
Reply

April 18, 2019 at 9:43 pm
1) You can sell it anytime you wish, no need to wait till expiry
2) If you sell a CE, you will receive the premium.
I’d suggest you read the other chapters to get a sense of how these options work.
Reply
200. Sulu says:

April 19, 2019 at 9:11 pm
Hello sir
I had bought 1lot of 2’000shares of INDIANB NSE 300CE@8 of expiry 25thApril2019.
The premium value went down to 0.7 by now.
The strike price by now is 265.
What to do,please suggest.
1.Should I buy 2more lots@ 0.7 to avg. the premium?
2.Will it be null by expiary?
3.By strategies is there any chance the premium price will go up to 4or5?
Reply

April 20, 2019 at 1:22 pm
1) If you are bullish, then you should. Really depends on how comfortable and confident you are on the
position
2) Your directional view has to pan out by expiry
3) No one can figure an answer for that
Reply
201. GouthamDavid says:

April 30, 2019 at 3:58 pm
Sir as all Options are Limit based orders.There is no way to trail the profits right??
Except modifying the SL and target is possible once order is executed.
Reply

May 1, 2019 at 12:21 pm
Yes, you need to keep modifying the order to trail your profits.
Reply
GouthamDavid says:
May 1, 2019 at 1:12 pm
Sir,
1.How to find the regular MIS margin amount for nifty and banknifty weekly options when shorting
either call or put.
2.currently BO/CO orders are possible for only options on stocks excluding nifty and banknifty right.
3.Will there be margin benifit for MIS orders on banknifty weekly options when we hedge by shorting
both call and put OTMs.
How to find the required amount on hedging?
4.sir why NiftyIT weekly options are not trading.Any specific reason?
Reply

May 2, 2019 at 11:31 am
1) You can check this, Gautam – https://zerodha.com/margin-calculator/Futures/

2) This is allowed only for Nifty
3) Yes, you will have to use the margin calculator for this. But only monthly options Check this –
https://zerodha.com/margin-calculator/SPAN/
4) Not many takers for this.
Reply
Gouthamdavid says:
May 2, 2019 at 5:16 pm
Okay Thank you sir.

May 3, 2019 at 11:33 am
Cheers!
202. Khilendra says:

May 16, 2019 at 11:28 pm
I purchased 2 lot of Nifty 11250CE of 16 May 19 expiry @0.95. I did not square off on expiry on 16 May 19. Nifty
closed on expiry I.e 16 May 19 at 11257.10(closing value) . My option become in the money. When I got contract
note, it shows my position sell at Rs 0 and account did not credited the intrinsic value of Rs 7.10 – 0.95. I should get
the profit of 6.15×150=922.50. Please clarify
Reply

May 17, 2019 at 11:49 am
Khilendra, that is because ITM options attract a huge STT if exercised, to an extent where you will end up
paying much higher than the profits earned. Hence your option was not exercised.
Reply
203. Bala says:

May 25, 2019 at 11:10 pm
Hi sir, my doubt is not related to this topic but in general options.. For a stock, each strike price has a premium and
charts, do that charts are also moved upon SnR? I mean let’s say SBIN 360 CE premium is 3.60.. Can we see the
chart of 360 CE and say 2rs is a support and 6rs is a resistance w.r.t history? Or simply the movement and premium
changes is based on the underlying stock buyers and sellers?
Reply
Bala says:
May 25, 2019 at 11:12 pm
And I’m asking this doubt because I see some members saying buy this call option and make SL at 6rs or 4rs..
How can they say that because the real supp is found in underlying stock only
Reply

May 26, 2019 at 8:50 am
Exactly, hence, for this reason, avoid looking at the option charts
Reply

May 26, 2019 at 8:49 am
Bala, it is best not to look at the charts of options. For trading options, always look at the spot charts. Take
trading decisions based on that.
Reply
204. Harsha says:

June 6, 2019 at 6:57 pm
Hi Karthik,
Thanks for your replies on this thread.
What happens if I have not sold my option contract on the day of expiry?
Example: I have bought 12000 put @Rs.50 with contract expiry June 06,2019. The closing price was Rs.141.5 and I
did not sold my contract. What would happen in this case?
Reply

June 7, 2019 at 11:32 am
This is not a problem as the exchange will settle this for you.
Reply
Harsha says:
June 12, 2019 at 8:11 pm
Will there be any fine for settling the contract from exchange?
Reply

June 13, 2019 at 7:43 am
No sir, no such thing.
Reply
205. SSK says:

June 19, 2019 at 10:05 pm
I see that you have mentioned the profit for the buyer of the call option raises exponentially when the spot price is
above strike price.
From the above explanations, I can see that

profit = SpotPrice – StrikePrice – premium (Assuming spot price is above strike price)
here Strike price and premium are constants. So, I see that profit is a linear increase wrt Spot price rise.
How did you claim it is exponential?
Am I missing something?
Reply

June 20, 2019 at 11:57 am
If it is linear, then for every 1 point increase in spot, the premium should go up by 1 point. This is not true,
especially for OTM options. For these OTM options, for every 1 point increase in spot, the premium goes up
many folds, hence the term exponential.
Reply
206. sandip says:

July 7, 2019 at 12:55 pm
Hello, if I am buying a call option since I expect the price to go up, then why the yellow region in call option exists
where the strike price is lower than the current market price, also why the premiums are so high?
Reply

July 8, 2019 at 11:20 am
You must be talking about the moneyness of the option, I’d suggest you read this module to get complete
clarity on this, Sandip. Thanks.
Reply
207. sandip says:

July 8, 2019 at 4:50 pm
I have read till chapter 6, I am having little trouble understanding this particular chart, my question is-
1) I will always buy the strike price which is more than the spot price for call option, so why strike prices lower than
spot price is shown?
2)If strike price little below spot price was shown in yellow it can be said the option has gone now ITM but it was
OTM before, but strike price till 1600 price exist which is too much below spot price. is it that the spot price was
below 1600 when option started??
(currently reading chapter 7)
Reply

July 9, 2019 at 11:21 am
1) This should depend on time to expiry, delta, vega, and of course your directional view. So you cannot
always stick to a single strike selection strategy
2) I’d suggest you read through all the chapters, towards the end you will get complete clarity.
Reply
208. Mani says:

July 27, 2019 at 11:01 am
Hello Sir, I am a trend follower or breakout trader and I am trading full time for last three years, that too only in nifty
futures, thanks to varsity’s technical analysis and position sizing module, I have built my account from 14 lots to 20
lots in these three years. I am using a 15 min time frame, since my lot size has increased slippage has become a huge
problem now, to solve this I have decided to buy monthly ATM options, while trading futures if I were to carry
forward my position I used to rollover one day before expiry, in option buying I have decided to rollover 10 days
before expiry to avoid theta decay. Usually my position days varies between few minutes to 2 months. My aim is to
make 75% of futures points in options and to build my lot size to few thousands.
My strike selection plan

for long position:
if nifty at 11665, buy 11700 option contract
if nifty at 11625, buy 11600 option contract
I would like to know your opinion on my option buying decision, will my rollover idea work in options, is mid
month expiry option contracts liquid enough to roll over ten days before current month expiry?
Is my strike selection for ATM option buying with delta of 0.5(approx) correct sir?
Reply

July 27, 2019 at 5:13 pm
Mani, you seem to be sticking to ATM strike, which is good. I think Nifty and Bank Nifty’s mid-month
contracts have decent liquidity to roll over. But the key trigger here is your identification of breakout. If this is
right, then I guess rest should be fine
Reply
209. Suryakant Borade says:

July 28, 2019 at 3:42 pm
Hello Sir,
your such notes are so much useful to me. But u doesn’t explain about strike price of Options. Did you explain it?
Reply

July 29, 2019 at 11:40 am
Yes, Surakant, its explained here – https://zerodha.com/varsity/chapter/moneyness-of-an-option-contract/
Reply
210. BHARTI A. T. says:

Hello Kartik ,
what if i am having 10,000 in my zerodha account and i buy 10 lots of bank nifty options(CE/PE) depending on my
view. While selling the options to book profit/loss, how much money should be there in my account? Can i sell all
lots at a time or do i need to offload one by one lot?
Please help me to know the scenario.
Regards
Reply

You dont need to have money in your account when you choose to sell these options.
Reply

Sorry i forgot to mention here that i bought options at 10/- premium.
Reply

THANK YOU VERY MUCH FOR CLEARING THE DOUBT.
Reply
August 3, 2019 at 11:44 am
Happy reading!
Reply
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Modules
1. Introduction to Stock Markets
14 chapters
2. Technical Analysis
21 chapters
3. Fundamental Analysis
16 chapters
4. Futures Trading
12 chapters
5. Options Theory for Professional Trading
23 chapters
6. Option Strategies
13 chapters
7. Markets and Taxation
7 chapters
8. Currency, Commodity, and Government Securities
19 chapters
9. Risk Management & Trading Psychology

16 chapters
10. Trading Systems
16 chapters
11. Personal Finance
3 chapters

Buying A Call Option - Varsity by Zerodha

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8/11/2019 Buying a Call Option – Varsity by Zerodha

Module 5 — Options Theory for Professional Trading

3.1 – Buying call option

3.2 – Building a case for a call option

1. Bajaj Auto is a quality fundamental stock, there is no denying this.

3.3 – Intrinsic value of a call option (upon expiry)

Scenario 3 – The stock price stays at 2050

The idea I’m interested in exploring now is this –

IV = Spot Price – Strike Price

3.4 – Generalizing the P&L for a call option buyer

P&L = Max [0, (Spot Price – Strike Price)] – Premium Paid

The solution is as follows –

= Max [0, (2023 – 2050)] – 6.35

= Max [0, (-27)] – 6.35

= Max [0, (2072 – 2050)] – 6.35

= Max [0, (+22)] – 6.35

= Max [0, (2055 – 2050)] – 6.35

= Max [0, (+5)] – 6.35

B.E = Strike Price + Premium Paid

For the Bajaj Auto example, the ‘Break Even’ point is –

= Max [0, (2056.35 – 2050)] – 6.35

= Max [0, (+6.35)] – 6.35

3.5 – Call option buyer’s payoff

Key takeaways from this chapter

1. Call Option Basics

Karthik Rangappa says:

October 27, 2016 at 4:42 pm

Karthik Rangappa says:

Karthik Rangappa says:

Just observed 1 point above so the same is posting below:-

My view – I think he will make profit of 7*400=2800 if sell before expiry.

Karthik Rangappa says:

Thank you in advance

Karthik Rangappa says:

Karthik Rangappa says:

1) Yes, you can.

2) Yes, you can. Yes, you make 100 in profit

Karthik Rangappa says:

Karthik Rangappa says:

Karthik Rangappa says:

Karthik Rangappa says:

Karthik Rangappa says:

How to calculate break even point in real market

Karthik Rangappa says:

4. T RAMA DEVI says:

Karthik Rangappa says:

Yella Reddy Mopuri says:

Karthik Rangappa says:

Answering on behalf of Rama – yes, it would be 75*10 = 750.

5. TSS KISHORE says:

TSS KISHORE says:

Karthik Rangappa says:

Karthik Rangappa says:

Two things Kishore –

sir,as they say to become ELITE TRADER

Karthik Rangappa says:

t-u work smartly to achieve

Karthik Rangappa says:

Sorry, dint quite get that!

Sir it was thank u

Karthik Rangappa says:

Sir, is this bullish engulfing?