on 12/9/2008, Last Price for NIFTY Call option expiring on 25/9/2008 [Strike Price of 4400/-] was Rs.54.70 and Put option was Rs. 205.50. Considering the abovementioned belowmentioned are my very basic questions:


1. Whether I can BUY call option i.e. @ 54.70 and simultaneously, in an another contract, SELL Put option which is @ 205.50 ? If I do so what will be the effect if NIFTY crosses 4400 on or before 25th Sept.

and

2. Whether unless and untill I buy Call / Put Option I am not allowed to sell Put / Call option.
I am not yet trading in FNO, hence, seniors Please clarify.
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Dear Mr Koranne,
Let me try to answer your question. My answer in the same serial order as your question is as under :

1. Yes,you can buy Sept 4400 call for Rs 54=70 and also sell Sept 4400 put for Rs 205=50. These are two independent trades. If Nifty goes above 4400 before expiry,the price of the call you have bought will go up and the price of put you have sold will go down making both trades profitable. Before expiry you can sell these contracts anytime. On expiry suppose Nifty closing price is 4500,then the call you have bought will be atomatically excercised by NSE at 4500 thus giving you credit of Rs 100 x the qty .Your profit will be Rs 100-Rs 54=70 the price you paid for buying call. At 4500 the 4400 put you have sold will expire worthless and you will keep the entire 205=50 premium you collected.

2 No,there is no restriction on selling any call or put (nothing like you cannot sell unless you have bought something).You can sell any call/put provided you understand the risk involved and know how to manage it.



So far we have talked only about profits,but consider what happens if the nifty goes to 4000. Your put sold will be excercised at 4400-4000 giving you a debit of 400 .Also the 4400 call you have bought will expire worthless,so losses on both the contracts.

Initially dont sell options till you become familiar with it and know how to escape with minimum damage if mkt goes against you.


Best Wishes,Trade well !!!