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Hi, Welcome To Finroot's Youtube Channel

This video discusses futures and options trading. It begins by explaining that thousands lose money in the stock market daily due to lack of knowledge, not bad luck. It then uses Reliance stock priced at Rs. 1500 as an example to illustrate the four options available if one expects the stock to rise: 1) buy the stock, 2) buy a Reliance future, 3) buy a call option, or 4) sell a put option. The video explains how these options would result in profit or loss depending on whether the stock price rises or falls. It then focuses on call options, discussing strike price, premiums, profits, losses, and break-even points. In summary, buying a call option offers limited

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970 views25 pages

Hi, Welcome To Finroot's Youtube Channel

This video discusses futures and options trading. It begins by explaining that thousands lose money in the stock market daily due to lack of knowledge, not bad luck. It then uses Reliance stock priced at Rs. 1500 as an example to illustrate the four options available if one expects the stock to rise: 1) buy the stock, 2) buy a Reliance future, 3) buy a call option, or 4) sell a put option. The video explains how these options would result in profit or loss depending on whether the stock price rises or falls. It then focuses on call options, discussing strike price, premiums, profits, losses, and break-even points. In summary, buying a call option offers limited

Uploaded by

ShreePanicker
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Voice over

Hi, Welcome to Finroot’s Youtube channel.


Voice over

Today we are going to have a discussion about Futures 'n' Options.


Voice over

Thousands of people lose money in the stock market every day, and that is not because of "bad luck",
it is purely because of "lack of knowledge".
Voice over

When it comes to the stock market, any stock can be in 3 types of situations. Either it goes up or down, or it remains within the
range.
Voice over

Here's a quick example that we'll carry throughout this discussion.


The current market price of "Reliance" share is around Rupees 1500, and in the near future, it can either go up or down or
there is also a possibility that stock remains near to 1500 only.
Voice over

If you are expecting the reliance stock to go up, here are your available options:
1. Buy Reliance stock in the cash market 2. Buy Reliance future at current market price
3. Buy a call of reliance 4. Sell a put of reliance
Voice over

All 4 options will give profit when the stock price goes up and will present losses
when the stock price goes down.
Voice over

If you buy the stock in cash, stocks will be delivered in your Demat account.
While the rest of the cases have nothing to do with your Demat account as those are the cases of derivatives that are settled in
a trading account only.
Voice over

Now, let's talk about the case when you buy a call or sell a put. For buying a call, you have to select a strike price, but what is
"Strike Price"? To put in simple words, strike price is nothing but an expectation.
Voice over

If you expect Reliance to go to 1600 levels, then you can buy 1600 strike call option. If you expect Reliance to go to 1700 levels,
then you can buy 1700 Strike call option.
Voice over

The further option you choose, the lesser will be the premium because there is a lesser probability that the stock
price will actually reach that strike.
Voice over

In the current scenario, let's discuss a case where the trader chooses to buy 1600 strike call option.
Voice over

Since you are buying, you have to pay some premium for that, Let's say 40 rupees. So, the total money you need
to pay to buy this call option is 500*40= 20,000
Voice over

Since you have paid only 20,000, your maximum loss is limited to 20,000, and breakeven for this trade is 1640 because 1600 is
strike price that trader has chosen and the trader has paid 40 rupees for it.
Voice over

So, on expiry, let's take the below cases:


Price on Expiry Net position on expiry
1540 40 Loss 1560 40 loss 1580 40 loss 1600 40 loss 1620 20 loss 1640 Breakeven (no profit no loss) 1660 20 profit 1680 40
profit 1700 60 profit
Voice over

Therefore, on expiry, any price above 1640 will give profit in our call option, To summarize, Buying a call option has the
following features: 1. Limited Risk 2. Unlimited Return
Voice over

But to complete a trade there has to be a seller. You cannot buy an option until someone has sold it.
Voice over

So what is the seller expecting from this trade? The Total Opposite,
The trader who is selling 1600 call strike simply thinks that the stock will not cross 1600 levels so that he can keep the entire
premium.
Voice over

Let's analyze the case of Call option seller:


Price on expiry Position of call option seller
1540 40 profit 1560 40 profit 1580 40 profit 1600 40 profit 1620 20 profit 1640 0 1660 20 loss 1680 40 loss 1700 60 loss
Voice over

To summarize, selling a call option has the following features:


1. Unlimited risk 2. Limited Return
Voice over

Always remember that someone's loss is someone else's gain. So, the loss of option buyer is the gain of option seller and vice
versa.
Voice over

But the real question is "If everybody understands that option buyer has limited return, why isn't everyone a millionaire?"
Voice over

And if the situation is as simple as it looks, "Why are people selling options?"
Voice over

"Does an option buyer actually has unlimited return and option seller faces
unlimited risk?"
Voice over

We'll find out in Finroot’s next video

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