Finance, Forex and Investments

How the options in indian market works. Please explain?

Let us asume that i am buying a call option of ICICI bank @420 -27th Oct-2008 with a premium amoun of Rs20/-. Now the limit of maximum loss i have to bear is 20x175 (lot) =3500/- if the price of the ICICI bank does not go beyond 440/-. If the price of the ICICI bank goes beyond 440/- , then i will get the profit. My question is how my option will be excercised. Whether there will be any margin money i have to pay to my brokor for bying / selling the options. In my above example if the price of ICICI bank will be 480/- on 23th Oct,2008 , what i have to do to get my profit & what will be the amount of my profit. Further can i sell my above Call option if the premium is more than Rs20/ . Also please explain the pro & cons of the option.Is it wise to trade in the options in the current market status & will it be much benfited than cash & future market. I will request all the think tankers to help us , the novice in the market. Thank u.

Public Comments

1. u have to pay only 3500 rs, of your call money
2. You seem to be a beginner; therefore we would strongly recommend that you restrict your investment to the cash-and-carry segment of the stock market through purchase of stocks. You would appreciate that options may be applied at best as an insurance instrument to protect your portfolio of stock positions from the present on going price erosion of stocks across the board in the stock market. Further, to try and apply options contracts as investments would be increasing your risk many fold; as if the market were to continue moving against your position beyond your contract expiry date you would loose the full amount of the options premium you would have paid up front. If you still want to go ahead with this misadventure, we would strongly recommend that you read the book "Options, Futures & Other Derivatives" by John C. Hull. Further, after fully understanding the nuances of options and futures, you would be well advised to meet a qualified investment advisor to understand fully how the profit would be made from this speculative action on your part. Sincerely, Akash http://www.narachinvestment.com http://narachinvestment.blogspot.com http://feedproxy.google.com/narachinvestment/uaXA http://www.narachphilosophy.com http://narachphilosophy.blogspot.com http://www.narach.com http://finance.narach.com