Buying An Option Or Selling It
As the stock market is interestingly poised in the new year there are opportunities available in making some quick money out of dealing in option-trading. Which may take either in form of purchase or sale of calls or puts depending on a particular state of the stock market. These days dual trends are clearly observed in the movement of the sensex as well as nifty. And the market has crossed the psychological barrier of 17000 mark and the nifty 5000 marks to signal a consolidation phase. It is interesting to note that it is moving in a narrow range of 200 points in the case of sensex and around in the case of nifty. A forward movement is followed by a reversal creating opportunities to make some money out of this volatility. It all depends on the timing of our action to go for sale or buy. It is possible that a situation like this is likely to persist for some more time before a breakout emerges or a sustained bull phase develops.
The global recession which gripped the economies all over the world and badly mauled the performances of the bourses in the last year, has somewhat eased but has not reached a point of assurance. There are just incipient signs of a mild recovery which are not firm enough to inspire the confidence of the common investors into taking long positions without the attendant risks associated the investment decisions.
In a scenario like this one consider investment in options which give you a set time-horizon to book profits. It has been our common experience that most of the options traders prefer buying calls or puts. But selling these derivative products could be a smart choice in situations described earlier. The only problem that one encounters in this regard is requirement of funds which in the case of sale is more.
To illustrate the point further if one considers selling a call of 5500 on a day when the nifty is on a high, say it rules at around 5350, at a premium of rupees 40 and he would earn rupees 2000 and after adjustment of brokerage of around hundred rupees , his earning would come down to 1900 rupees and if the nifty sheds some fifty to sixty point the premium is like to fall hypothetically by 10 rupees on the very day he gets an opportunity to square up his position by buying the same call and thereby earns rupees 300 after adjustment of brokerage as brokerage is charged on both legs. As the rate of brokerage varies form brokers to brokers the profit figure may be more. There might be another scenario if it is not possible to square up the position on the same day. If the luck sides with you and the nifty continues its downward journey into the next you may succeed in striking a better deal by squaring up at even lower levels.
However readers are advised to go deep into the risk elements in an option-trading before undertaking any such venture. It is always preferable to invest in a small way to put any investing idea into practice to have a first-hand knowledge or to be hands-on. It is never desirable to follow the suggestions of others without a thorough understanding and the implications of your financial transactions. Knowledge can never replace the advice of so-called experts and your success would depend on how keenly and seriously you learn the ropes in this regard. I have seen how these advisors pop up proffering advice when the goings are good and vanish from the scene when things turn sour without even owning up their piece of advice. Happy investing!
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