A doubt regarding ITM options

Hello guys,

I have a doubt. I am using random numbers for the sake of example.
Today I buy a Deep ITM option of a stock ‘A’ whose spot price is 2300. Expiry is tomorrow.
The option I select is 2000 CE and premium = Rs 500. Tomorrow the spot becomes 2200
and the premium becomes 400. But still i am ITM. Here how much will be my profit or loss?

You purchased 2000CE at ₹500 when spot was 2300₹. That means you paid ₹300 intrinsic value + ₹200 premium (premium = complex mixture of time value until expiry, volatility of stock, etc.)

As per your hypothetical situation, tomorrow spot becomes ₹2200 (decrease of ₹100 in the underlying) that doesn’t means option price will also decrease by ₹100.

The option premium can both increase / decrease which depends on various factors like indiavix tomorrow, IV of the particular stock, etc.

If considering all of the above remains same, you can get a rough estimate at Sensibull for approx option price that will be at the end of the day.

Also note, liquidity for ITM and deep ITM stock options is low. So again it will depend on the ask - bid spread which you can check in market depth column.

On the day of expiry, it’s very likely that deep ITM option will trade very close to the intrinsic value.

Bro you will be in 300 Rs Loss.
As you said expiry is tommorrow your positions will be settled and you’ll receive whatever is the intrinsic value ie 200Rs

Spot 2200
Call 2000
Settlement 200

since you paid rs500 in the beginning and you’ll get back 200 on settlement hence 300rs loss

This is for index

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Stock options are compulsorily physically delivered. So you must have around ₹7L-10L cash margin to take delivery at ₹2000 per share for which you had already paid ₹500 premium. So net per share costing would be ₹2500, @blazesprings

@Nidal : 1. Please let me know taking only delta into consideration (ignoring all other greeks),
and that the lot contains only 1 share, what would be my profit or loss?
2. What do you mean by phisically delivered that you said in your post?

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If tomorrow is the expiry, then you will loss ₹300.

And by 3:30 pm if you don’t sq off your position of stock options, you will be required to take delivery of the underlying stock.

You can read about physical delivery here:

Dear @Nidal bro, that means that If i square off before 3:30 PM, i will not be required to take delivery of the
underlying stock?

Yes. If you square off your position then you won’t need to take the delivery but you’ll just suffer 300Rs per Qty Loss.

Yes, if you sq off before 3:30 p.m. you will not be required to take delivery. But you will lose ₹300.

And generally stock options are bit illiquid, especially deep in the money and near to expiry. So it will be risky, in terms you will not find buyer at your desired pricing (or worst no buyers at all) and maybe you will lose more than ₹300 considering the ask-bid spread.

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Thanks @Nidal and @GoutamHebbar . This physical delivery is not applicable to index options right?

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Yes. Physical delivery is not applicable to index options. Hence I suggest you a trade in Index options if you have less appetite for risk.

Not applicable for index. Index FnO are cash settled. No issues to hold them to expiry.

If you are a beginner, trade in index FnO, that too nifty only. Once you get hold of it, then you can start stock options. Since getting desired entry/exit for stock options is a challenge due to liquidity issue.

Dear @GoutamHebbar bro This means that 200 will reflect in the funds section (in kite)?

Yes. First 500Rs was deducted from your account for paying premium. Since you made 300Rs Loss, 200Rs will be returned to you.

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Thanks bro for your detailed explanation