What if you had bought one lot of Titan Limited’s option contract?

On Tuesday’s trading session, the stock price of Titan, a brand under the Tata Group spanning from jewellery to eyewear, surged over 1.5% and eventually closed at Rs 3,394 per share, marking a new all-time high on the BSE.

During the intraday, it touched an all-time high price of Rs 3,400 per share on the BSE. Moreover, the market capitalisation of the company not only touched but also surpassed Rs 3 lakh crore. The current market capitalisation of the company stands at Rs 3,01,327 crore as of today.

Turning your attention to the stock performance, the scrip has delivered an impressive 32% return during the last one year, and an outstanding return of 149% over the last three years.

In this article, we will analyse what would have happened if someone had bought one lot of options contract of Titan Limited (November month expiry) on the very next day after the last month’s expiration day, which occurred on October 26. For the sake of better calculation, we will consider the closing price of the option contract of October 27.

On October 27, Titan share closed at Rs 3,120.70 per share. Since that day, the stock rallied over 8.5% during the last twenty-six days. On the other hand, the option strike price of Rs 3,120 for the November month expiry closed at Rs 84.45 per lot on October 27. If someone had bought one lot, it would have cost them Rs 31,668.75, based on a lot size of 375 units. Today, it closed at Rs 275 per lot.

Calculating the profit per lot, it amounts to Rs 190.55 per lot, which signifies a 225% surge compared to the purchase price. In terms of value, the profit would be Rs 71,456 per lot, indicating that the value of Rs 31,668 per lot became Rs 1,03,125 per lot, representing an impressive 225% gain in a single lot of option contract.

Stock Price Chart & Option Chart (Daily Time Frame) 

Please take note buying an option is favourable when there is strong momentum in any stock or index, but it’s not guaranteed, as the market is supreme and can prove everyone wrong. For beginners, it is not recommended to dive directly into trading options. It requires skill, in-depth knowledge, and substantial expertise in trading options. Also, trading options naked is very risky compared to using hedges.

Options serve as hedging tools, although nowadays, they are frequently traded in both stocks and indices because they demand less money when a trader buys an option contract, selling the same contract requires a significant amount of money.

If you are an option contract holder, time decay (theta) is your enemy, whereas it serves as a source of income for the seller. In short, buying options requires careful observation and implementation before investing your hard-earned money in any option contract.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.