yeah I am new to F&O
so if i exit trade before expiry i am actually trading premium
but what happens on expiry day, if i was long on call option then i get the right to buy the share. so shares will be alloted on my demat account???
If you’re trading in stock options then physical delivery happens if options are expiring ITM (In the money) it’s all based on moneyness. For Index options, there’s no delivery it’s settled in cash.
please go through the varsity link posted above to learn more. do not directly jump into it or you’ll face huge losses.
for eg. almost all contracts for stocks are of around 15Lacs so if you get into physical settlement you’ll need more than 15 Lacs for the settlement. This is to warn you what might happen not to scare you. I encourage you to learn from basics and start learning with index options with single lot to get the real experience once you’ve learned from reading/watching videos.
correct me if I am wrong, consider long call for Reliance
strike=2380 (OTM option)
after a few days,
strike=2380 (it became ATM)
since the underlying has increased the premium will also increase for a call option
therefore Premium @ strike2380 will be 42
therefore if now I exit this trade my P&L will be
P&L = 42-16 =26 * lot size
I hope i am correct till here
but if I wait till expiry
on expiry day
strike=2380 (it became ITM, lucky me )
now the premium is expensive in ITM
therefore premium for strike @2380 will be 90
a. if i dont exercise the right to buy the share then my P&L will be
P&L = 90-16 =74 * lot size …am i correct over here???
b. if I exercise the right to buy the share then P&L will be
P&L = IV - Premium Paid
=(spot - strike) - 16
=(2440-2380) - 16
=44 * Lot size, —>this is the profit if I exercise the right to buy the share, so now what will happen to shares ??? will it be in my Demat account??? also do I have to buy 1 lot shares???