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Further we looked at four different variants originating from these 2 options —. Think of it this way — if you give a good artist a color palette and canvas he can create some really interesting paintings, similarly a good trader can use these four option variants to create some really good trades. Imagination and intellect is the only requirement for creating these option trades. Hence before we get deeper into options, it is important to have a strong foundation on these four variants of options.

For this reason, we will quickly summarize what we have learnt so far in this module. Arranging the Payoff diagrams in the above fashion helps us understand a few things better. Let me list them for you —. Going by that, buying a call option and buying a put option is called Long Call and Long Put position respectively. Going by that, selling a call option and selling a put option is also called Short Call and Short Put position respectively.

However I think it is best to reiterate a few key points before we make further progress in this module. Buying an option call or put makes sense only when we expect the market to move strongly in a certain direction. If fact, for the option buyer to be profitable the market should move away from the selected strike price. Selecting the right strike price to trade is a major task; we will trading in gold option expiry 2016 this at a later stage.

For now, here are a few key points that you should remember —. The option sellers call or put are also called the option writers. Selling an option makes sense when you expect the market to remain flat or below the strike price in case of calls or above strike price in case of put option.

I want you to appreciate the fact that all else equal, markets are slightly favorable to option sellers. This is because, for the option sellers to be profitable the market has to be either flat or move in a certain direction based on the type of option.

However for the option buyer to be profitable, the market has to move in a certain direction. Clearly there are two favorable market conditions for the option seller versus one favorable condition for the option buyer. But of course this in itself should not be a reason to sell options. This means to say that the option writers earn small and steady returns by selling options, but when a disaster happens, they tend to lose a fortune. Well, with this I hope you have developed a strong foundation on how a Call trading in gold option expiry 2016 Put option behaves.

Just to give you a heads up, the focus going forward in this module will be on moneyness of an option, premiums, option pricing, option Greeks, and strike selection. Once we understand these topics we will revisit the call and put option all over again.

This information is highlighted in the red box. Below the red box, I have highlighted the price information of the premium. If you notice, the premium of the Trading in gold option expiry 2016 opened at Rs. Moves like this should not surprise you. These are fairly common to expect in the options world. Assume in this massive swing you managed to capture just 2 points while trading this particular option intraday.

This translates to a sweet Rs. In fact this is exactly what happens in the real world. Traders just trade premiums.

Hardly any traders hold option contracts until expiry. Most of the traders are interested in initiating a trade now and squaring it off in a short while intraday or maybe for a few days and capturing the movements in the premium. They do not really wait for the options to expire. These details are marked in the blue box. Below this we can notice the OHLC data, which quite obviously is very interesting. The CE premium opened the day at Rs. However assume you were a seller of the call option intraday and you managed to capture just 2 points again, considering the lot size isthe 2 point capture on the premium translates to Rs.

However by no means I am suggesting that you need not hold until expiry, in fact I do hold options till expiry in certain cases. Generally speaking option sellers tend to hold contracts till expiry rather than option buyers.

This is because if you have written an option for Rs. So having said that the traders prefer to trade just the premiums, you may have a few fundamental questions cropping up in your mind.

Why do premiums vary? What is the basis for the change in premium? How can I predict the change in premiums? Who decides what should be the premium price of a particular option? Well, these questions and therefore the answers to these form the crux of option trading. To give you a heads up — the answers to all these questions lies in understanding the 4 forces that simultaneously exerts its influence on options premiums, as a result of which the premiums vary.

Think of this as a ship sailing in the sea. The speed at which the ship sails assume its equivalent to the option premium depends on various forces such as wind speed, sea water density, sea pressure, and the power of the ship. Some forces tend to increase the speed of the ship, while some tend to decrease the speed of the ship. The ship battles these forces and finally arrives at an optimal sailing speed.

Crudely put, some Option Greeks tends to increase the premium, while some try to reduce the premium. Try and imagine this — the Option Greeks influence the option premium however the Option Greeks itself are controlled by the markets. As the markets change on a minute by minute basis, therefore the Option Greeks change and therefore the option premiums!

Going forward in this module, we will understand each of these forces and its characteristics. Trading in gold option expiry 2016 will understand how the force gets influenced by the markets and how the Option Greeks further influences the premium. We will do the same in the next chapter. A quick note here — the topics going forward will get a little complex, trading in gold option expiry 2016 we will try our best to simplify it.

While we do that, we would request you to please be thorough with all the concepts we have learnt so far. Thanks a lot for sharing learning material, it is really helpful for beginners like me to understand the concept and strategy of share market. We are trying out best to complete the modules as fast as we can.

European option means the settlement is on expiry day. However, you can just speculate on option premiums…and by virtue of which, you can hold the position for few mins or days. Also we have potential of unlimited profit in long call or long put and even we can trail stoploss of premiums. Thank you so much for your articles sir.

Cause sitting in front of computer is not possible. Even if we r there we may miss the trade id doing some thing else at the time we are suppose to trade or squareoff trading in gold option expiry 2016 tyrade. Till now it has been very clear and crisp.

Thanks for that and hope that further chapters will also come the same way. We will be discussing SL based on Volatility very soon.

Request you to kindly stay tuned till then. We certainly hope to keep the future chapters as easy and lucid as the previous ones have been. Hi Really nice initiative sir. Hello Sir, if I buy a lot ofcall option of strike price at a premium of Rs 2 with a spot price of Now if the price moves to and premium is now at 3 so would be my profit?? Firstly, if the spot moves from totrading in gold option expiry 2016 premium of the Call option will certainly be more than Trading in gold option expiry 2016.

Your profits would be —. Hello Sir, I am still confused with the way the profit is calculated. Might be, I am not able to get what u explained and I am really sorry for asking it again.

In some of your replies, you mentioned that the profit is calculated as per trading in gold option expiry 2016 difference of spot price and strike price and in some replies u mentioned that it is as per the difference of premium.

In case of 1 trading in gold option expiry 2016 of shares the profit would be. So which of the above options are correct???

Is there a trading in gold option expiry 2016 if I am closing my position before expiry or excersize it at expiry? For all practical purposes I would suggest you use the 2nd way of calculating profits…i.

Do remember the premium paid for this option is Rs 6. Irrespective of how the spot value changes, the fact that I have paid Rs. This is the cost that I have incurred in order to buy the Call Option.

Please note — the negative sign before the premium paid represents a cash out flow from my trading account. This lead to my confusion. Got your point, see if you are holding the option till expiry you will end up getting the amount equivalent to the intrensic value of the option.

I have explained more on this in the recent chapter on Theta…but I would suggest you read up sequentially and not really jump directly to Theta. The calculation provided by karthik in chapter 3 is for expiry calculation on expirt date.

Hope this clears your doubt. The minimum value for this option should be STT stands trading in gold option expiry 2016 Security Transaction Tax, which is levied by the Government whenever a person does any transaction on the exchange.

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To begin with, I need to apologise for the delay in putting up this chapter. Anyway, let us get straight to work and discuss Silver. There is a common perception that the market price of gold and silver makes similar moves.

We will discuss pair trading in detail, perhaps in a different module altogether. However, let us go ahead and investigate if Gold and Silver move in tandem.

I did run a correlation check on Gold and Silver using 30 minutes intraday data for the last 3 months note this is over a data points and here are the results —. The correlation on an intraday basis is 0. So what does this mean? Well, the correlation suggests that the two metals make similar moves on an intraday basis. If the intraday correlation is as tight as 0. This will be a kind of hedged strategy as you are long and short on similar assets at the same time. There are lots of other things to take care of when you initiate such trades; more on pair trading at a later point.

If you were to just look at the graph and take a call on how closely the two metals move, then chances are you would disregarded any sort of correlation between them J, but the actual numbers paints a completely different picture! Longer term data will portray more meaningful information. In fact, I dug up the correlation data between silver and gold from a recent survey by Thomson Reuters, and here is what they suggest —.

The correlations are broken down on a quarterly basis clearly a longer term approach here and as you can see the correlation between Gold and Silver is on average is about 0. The tight EOD correlation implies that traders and investors consider both gold and silver as safe havens in times of economic crisis. This further implies that any global geo political tensions tend to drive the price of not just gold, but silver as well.

Also, please do note the correlation of Silver with Oil, it is quite erratic and gives a sense on unreliability here. Silver has applications in industrial fabrication, photography, fashion, electrical, and electronics industries.

Hence, there is always a demand for silver. Historically, the demand for silver has grown at roughly 2. Out of the total global demand, bulk of it comes from industrial fabrication and manufacturing. This directly suggests that the price of silver is kind of influenced by growth of manufacturing and industrial economies such as China and, to some extent, India.

On the supply side, global mining production along with scarp and sovereign sales stands at The supply has not really improved over the years; in fact the data suggests that the growth in supply has just been about 1. You can read the complete survey report. Given how the supply and demand scenario plays out, there is a lot of scope to trade silver as a commodity.

This leads us back to the most important question — who decides the rate of silver? Well, silver rates are fixed the same way as that of gold, in London, by a pool of participating banks. There are four variants of silver contracts that are available for you to trade on MCX. They differ mainly in terms of contract value, and therefore the margin required.

These contracts are as follows —. Let us begin with the main Silver contract. The price quotation for the Silver contract is 1 kilogram. This means when you check the price of Silver on MCX or on your trading terminal, the price that you see is for 1 kg of silver. This price includes the import duties, taxes, and all the other applicable duties. Have a look at the screenshot below taken from Kite —. The current price of Silver December Future is Rs. Since the contract is for 30 kgs lot size , the contract value will be —.

As far as the contracts expiries are concerned, here are the set of contracts that are available to trade as of now as of Oct , note all contracts expire on the 5 th of the contract month —. When the December contract expires, the December contract gets introduced to the market. You must be aware by now that the most liquid contract to trade would be the one which has the closest expiry date. Do recall, settlement in equities is always in cash and not physical.

This means if you hold 10 lots of Silver and you opt for delivery then you will get delivery on kg of Silver. In order to get the delivery of the commodity, one has to express his intention to do so.

This has to be done any time before 4 days to expiry. So given that the expiry is on 5th, one has to express his intent to take delivery anytime on or before the 4th 1st, 2nd, 3rd, 4th. If you are trading with Zerodha, note that we do not allow you to get into the physical delivery of commodities.

So you will be forced to close the position before 1st of the expiry month. In fact, I personally prefer to close the positions early on and not really get into the physical delivery of commodities just because of the logistics involved. Another important point to note here — while the delivery is mandatory for Silver 30 kgs contract, delivery is not mandatory for the Silver Mini and Silver Micro contracts. However, you do not have the option to cash settle the Silver 30 kg contract.

The table above maps a commodity with a location, for example Silver Micro is mapped to Ahmedabad. Ever wondered what this really means? We all know that upon expiry, the price of the underlying in the spot market and its futures price converge to a single price point. Now in case of equities, the underlying and its futures are traded on the same platform i. However, in case of commodities there are many different spot markets.

For example, Pepper and Rubber are prominently traded in Kochi. Gold is traded in both Mumbai and Ahmedabad and so on. Given this, upon expiry, the futures of Gold should merge with which spot price? Should it be the one in Mumbai or the one in Ahmedabad?

For this exact reason, MCX has mapped each commodity with a spot market, and upon expiry the futures price will converge with the price of the designated spot market. If you are comfortable with the contract details of Silver mentioned above, then it is fairly easy to understand the other silver contracts that are traded on MCX. They vary mainly in terms of the lot size and therefore the margin requirement. The delivery option helps you decided whether you would like to take delivery of the contract or simply cash settle.

As you can see, the margins required are much lesser quite naturally compared to the big silver contract. As far as trading is concerned, similar to Gold, the Silver Fundamentals are quite complex — tracking them on a day to day basis may not really be possible and in fact is not really required.

Most traders I know trade commodities based on technical analysis. I personally think this a much better way to go about active commodity trading. On the same lines is there a link available which allows us to do the same thing for silver or gold etc.

You can now do this with Zerodha Pi. Hi, Thanks for this chapter. Since gold and silver move in same direction. Can I buy gold if a buy signal emerge in silver and same as can I buy silver if a buy signal emerge in gold Sir will it Good to do?? End what is tha last day of expirei month? Glad to hear that. Will be waiting for it. Meanwhile can you recommend any good source to learn pair trading.

I have almost completed learning basics of it, but not getting some clarification for certain points. If at all your recommendation links might work for me. I do plan to cover that sometime soon. But its a paid program, not free. Its always better to close the commodities position before expiry to avoid settlement obligation. I mean on 5 of expiry month I can close my position, since in this not compulsory of taking physical delivery, we can do cash settlement also.

I understand how gold is priced in India since our demands are met by import. But is silver priced in the same fashion? Since the supply of silver is low globally compared to the demand and we export quite a bit of silver every year with the imports falling drastically. That the maximum lots that can be pruchased in a single 1 order is ? Is there a limit by MCX, that an order above certain amount, for individual traders, would be rejected?

Or per contract spec. Would a similar calculation be applicable for other commodities in MCX based on their contract specifications? Thanks for providing quality material delivery of the contract or simply cash settle! I am still confusing …. Cash is when you pay the difference in your buy and sale price. Is there any correlation between silver and base metal like copper? Is safe to trade in that time? I cannot comment on the safety part.

This really depends on how you trade.