Options Trading is complex; don’t you think the same? As it has so many terms to remember and use whenever needed. Some of the two terms of options trading are CE and PE. So, what is CE and PE in the share market? In this article, I will explain CE and PE with a comprehensive guide. After reading this, you will not have to look anywhere for the same information. So, if you want to know the CE and PE meaning with an example, stay connected with this crucial post.
Let’s start discussing both terms with several examples. Here I have covered each topic individually to make you understand better out this crucial stock market term.
CE Meaning in Stock Market
CE refers to the Call Option, although it originally refers to the Call European. The CE is the type of contract or the investment contract that gives a right to investment. But does not acquire commitment from them to buy stock, securities, and any other assets from the stock market with a defined price and given time frame. Call buyers can gain essential assets (i.e., shares, commodities, or bonds) in the share market. With the help of a call option or CE, the investor can buy a certain number of shares of a desired company with the strike price before the expiry date.
When Should You Buy CE or Call Option?
Let’s assume the HDFC is conducting their AGM or Annual General Meeting. You strongly believe that a positive result will come. Here, the positive result for you and an investor can be the increment in their share’s price. They have strongly believed their company will do better this year and offer a higher dividend. In that case, you can get attracted to their share price that cost Rs1000 in the current market, and you can show your interest to buy that with the hope to earn profit in the future when the prices of these shares get increased. On the other hand, the share of HDFC can be too risky because if the sources do not provide the correct information, you can lose big money. Therefore if you are still willing to use some of the portions of your fund, then you can use CE or Call options because using this will be the perfect choice for this scenario.
Example of CE
Here is one of the ideal examples of CE; let’s discuss this as well. You get a solid recommendation to buy shares of Reliance. They will soon launch some good things that will give you multiple times more profit than the current market situation. In that case, you can show your intent to buy the share of Reliance with the call option which has a strike cost of Rs1000. As you will use CE with the quoted price of Rs10, you will be paying the premium amount of Rs10 each, and it will cost you if you Rs2500 need 250 units. And after this investment, you start earning profits once the prices of shares reach the strike price and premium you put there, i.e., 1000+10.
Now that you have learned what CE is, let’s know about PE in the share market.
PE Meaning in Stock Market
PE is also one of the standard terms used in the stock market that refers to the Put Option. Initially, it means Put European, and it is also a type of contract in which you can enter. In this contract, the holder receives some advantages. However, he does not require to commit to selling securities before the value of an actual asset is specified within the predefined time obtained. Here the strike rate stays fixed on which the trader wants to sell his securities. These securities can be sharer, futures, currencies, bonds, and indices; all these assets are considered essential PE assets.
You should notice that CE or Call Option is entirely different from PE or Put Option. Also, if there is no seller in the stock market, there will not be any bidder. Similarly, if there is no PE, then you will not get CE or call Option.
Things You Need to Consider While Buying PE or Put Option?
PE or share put options generally work as the stock call option. In this case, the investor works as bearish and is supposed to profit when the decline happens in the share’s price. If you are dealing with this trade, you should analyze the trend and the movement of the stock. If there is any drop in the price, it can go higher after a few minutes. And if the prices go up again, then you miss the opportunity to earn profit.
Example of PE
Think that you have shares of Wipro, and you think the prices of this share will decline. And because of this, the prices of stock can go below Rs1200, which is the current price of the share. To take advantage of this, you can set a strike value of Rs1100 and assume the premium price as Rs10. If you want to buy the share of Wipro, and the lot size is 250 units, you will have to pay a 2500 premium.
Now You Can Deal With Two Scenarios.
Scenario One Where You Earn Profit
During this trading, you can earn Rs10 per stock if the prices go down to Rs1100. Also, if you are assured that the prices will go down, let’s say Rs1090 or below it, you can wait. However, if you want to grab the opportunity, you can grab this chance as soon as possible because the trend can go higher.
Scenario Two Where You Face Loss
You can also have a loss if the prices of the share got increased rather than falling. If this happens, then you will bear an Rs10 loss amount for each share with a total of Rs250.
If you are thinking of dealing with such shares in the Indian stock market, then you should know that Options and Put can not be bought on any asset. Only those shares or stocks that meet the SEBI’s strict guidelines and have been selected from the top 500 companies shares are allowed to trade. These shares are selected by considering many factors such as average daily price, market valuation, and more with the performance of the last six months.
So, I hope you learned CE and PE in the share market and understood with examples. Futures and Options are crucial terms of the Share market; therefore, if you want to keep reading about these, then you can check out our other posts as well. Moreover, if you want to know about Call Option and Put Option, you can comment below.