Thursday, November 20, 2008

Introduction to Options

There are two fruits, say banana and apple, in a basket. If you were given an OPTION to take one of the fruit, which one will you take?
Notice the word OPTION in the above sentence. You are given a choice between two fruits.

Say, now a security is at Rs.5000/-. You think it will go to Rs.5500/- in a month.
If you have Rs.20000/- for trading, you can buy only 4 now and sell it after a month. If you opt for OPTIONS, you can buy at a lesser price and gain more. For Rs.20000, you could get an option for buying 80 (approx.) securities (each Rs.5000/-).

After a month, if the security price is Rs.5500/-,
You would gain => (5500 - 5000) * 80 = 40000.
But you have already given 20000 to get the option.

So, your profit would be Rs. 20000/- => 100% return in just a month :-)

After a month, if the security price is Rs.4000/-
you have already spent Rs.20000/- on getting the option.

Total Loss: Rs. 20000/-
(Already spent on getting option. You will not execute this one.)

You will be given an option to execute it. You will execute only in the case of CASE I and not CASE II.

If you are executing the options, you will end up paying brokerages for buying and selling the securities.

Coming to the JARGONS of Options.

(1) CALL - Right to buy.
(2) PUT - Right to sell.

If you think, the security is going to go down, you can BUY PUT.
If you think, the security is going to go up, you can BUY CALL.

Let me tell you, the OPTIONS are always riskier. Most of them will be illiquid.
One of the highly liquid instrument is NIFTY Options.

When you BUY CALL, to get out of options before the date of expiry, what should you do?
If your answer was BUY PUT, Please don't try trading options. You should WRITE/SELL CALL.

Brokerages on Options:

Buying/Selling an option - Rs. 100/- or 1% (whichever is higher)
While exercising an option - Intra-day brokerage charges. (vary depending on the customer and brokerage houses.)

The real advantage of OPTIONS, you can gain more from less money. Even 100% Return on Investment is easily possible (Beware, the reverse is also possible :-P)
There is a cap on the downside but there is no cap on the upside.

Wednesday, November 5, 2008

Make the train journey more delightful

For those who are new to booking ticket in IRCTC, take a look at my previous post.

There is some good news for the IRCTC users. You are in no need to search for your ID card while booking your ticket. Also, you can take the print-out of the mail sent to you and travel with that.

The only thing is at least one person mentioned in the booked ticket should have his ID card to show it to the TTE/TTR.

These are the recent set of instructions for e-Ticket bookers in IRCTC

There is a introduction of "Side Middle" in few of the trains and it does improve the revenue for the government. But it puzzles even frequent travellers!!
More puzzle comes on the way when you booked a upper birth and got a side middle birth. Sometimes TTEs rectify this and sometimes they don't.

Even if the ticket say S5 35/ UB, you will be alloted Side Middle. Can you spot out why?
When you booked the ticket the system was programmed to have 8 births / compartment. Now, after the introduction of Side Middle birth, it is 9 births / compartment.

Reminder for 35/8 => 3, which is the upper birth in the compartment of 8.
Reminder for 35/9 => 8, which is the side middle in the compartment of 9.

Each and every one will have some comfort while travelling on a specific birth and ask for a specific birth while booking the tickets. He is annoyed on seeing the TTEs response when he is of second type (not resolving the issue in the proper way).

They end up compromising or swapping their seats with the fellow-passengers.

This is acceptable for a limited period, in the interim, of course. But that period doesn't seem to end even after 3 months. The train journey is always more safe and comfortable than any other journey. It will be even more delightful if the peers look and fix these kind of issues as soon as possible.