2.5.08

what is put option in derivatives

option trading is slightly different from the futures and cash trading.in options there are strike prices of stocks and indices around which the whole trading revovles in option also there are two types of option one is put option and the other is call option .i would like to explain this with the help of nifty options now ,nifty is at 5220 and the put option of 5100 strike price is 83rs which means that according to the current seen if nifty comes down below the strike price which we have selected 5100 or even if the nifty comes down from the current price of 5220 the price of 5100 put option of nifty will go up ,in simple terms in put option we can benefit if the price comes down ,in the morning i had bought put option of nifty 5100 strike price at 70 rs that time nifty was at 5250 than the nifty came down a little at around 5200. the price of 5100 put option of nifty went upto some 92rs .i sold it around 90rs making a decent profit of 20rs , nearly 30% profit .i usually love put options when the market goes up the put options become weak that time i buy them and when market becomes weak the put options go up .still you have to be very careful .i have made losses also many times but it is limited , because i maintain a very very strict stop loss .in option you cannot hold any thing for more than 3 - 4 days otherwise you stand a chance of loosing money .the biggest negative factor in this is there is very little time for you to cover and there is no carry forward system in this .you have to play this in small parts only and quickly, you should be ready to book loss .this are valid for one month only ,you can say some 20 to 24 trading days every month ..it is just like a twenty -20 match.

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