I am beginner in trading.
So scenario is: For e.g. until the expiry date i want the stock value to stay at $50 or less. But what happen if the stock price went high and then go down near expiry date?
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Are you the buyer or seller of the call? You seem to have a simple question, which is fine, but without more details, it's tough to answer without reviewing the multiple possibilities. You can be buyer or seller, if you are the seller, the call can be naked or covered, etc.– JTP - Apologise to Monica ♦Jun 23, 2016 at 12:13
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The answer to your question is simply "you lose all your money".– FattieJun 23, 2016 at 15:17
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1 Answer
But what happen if the stock price went high and then go down near expiry date?
When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a "good faith" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position.
Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day.
(Net margin is the net of "Initial Margin" and "Variation Margin".)
As the expiry date approaches, the "time value" component of the option price will be decreasing.
