Indian Stock Market

Hi Everybody, Yes selling Calls and Puts without hedging is very risky, I will share my personal Experience, I sold Nifty Puts during May 2006, When Mkt crashed , i lost money in my Nifty 3400 PE i think ,where i did not Hedge, I lost a Sizable amount of Capital. Selling Call is also risky, For ex - Due to Govt uncetainty and Subprime last month was very Volatile, Nifty touched nearly 4050 , At that time 4100 Ce was nearly 70 Rs , If some one sells a 4100 Ce at 70 , when the Mkt raised continously to 4400 during Settlement he has to pay 300 Rs Net will be 230 rs per contract( 300 - 70 Premium received). So a Proper Hedging like Buying 2 higher calls like 4200 Ce will safeguard the Capital.
HEDGING is a essential Mechanism in Selling Calls and Puts.
Regards Ramanathan
On 9/12/07, Shalin Patel wrote: > > hey prem, > it might look tempting to sell the options and book the premium however it > might not be the safest thing to do so… the maximum profit one can enjoy > is the premium on the option while the losses are huge (in case of sellin a > put) and unlimited (in case of calls)…one should also remember that index > options are of European type, settled at expiry…. the markets have also > been at their volatile best and noone can guarantee the direction and degree > of their movement perfectly…. i feel that one may sell an option but also > take a corresponding position to hedge the risk, eg - sell the call and buy > futures vice versa… > its also better to do a thorough homework to predict the movement of the > markets before selling an option… > Seniors pls share your views too.. > > Regards, > > > On 9/12/07, Prem K Agarwal wrote: > > > > > > For example: > > > > the nifty 4750 call was traded at 25-30 rupees. sep 07 > > expiry… > > > > as nifty gather strengths to say about 4650-4700 range > > this call can become 50-60 rupees > > > > at that time we can sell it and get the option > > premium.. > > > > our breakeven will be at 4800-4810 … which is very > > unlikeky levels for nifty closing on the expiry day > > > > this i am telling becaue one of the renowned teachers > > of Management & Financial Accounting subject of CA > > final level , told while explaining Derivatives > > Chapter that most of the time it is option seller who > > makes the money… > > > > Senoirs Please Analyse…. and suggest > > > > Regards, > > Prem K Jasrapuriya > > > > > > > > > > > > > > ____________________________________________________________________________________ > > Building a website is a piece of cake. Yahoo! Small Business gives you > > all the tools to get online. > > http://smallbusiness.yahoo.com/webhosting > > > > > > > >