Read abt covered put option a few days back and seems it is a good strategy in purchasing a stock at lower price. As far as my understanding goes, at the end of expiry, if I don’t square off I will have to take physical settlement of the shares. What I want to know is what happens to the premium? Will I have to square off before expiry?
For example, for a Rs 100 stock, I sell a put option with ST@90. If it closes at say 85, I have the option of purchasing the lot in cash at 90 (which I would be happy to do so) But what happens to the premium which would have risen? Will I have to purchase a higher priced put option to cover the one which I had sold?
Premium collected by an option writer is always retained by him both in squaring off or physical settlement.
Having said that, the video by PR sundar is a myth. Ur loss is realized no matter u take delivery or square off ur put option sell position.
Imagine 2300 strike price of bajajfin u sold a put option. Expiry day 1800 spot price of that stock.
Instead of buying at 1800 we are forced to buy at 2300 that too a forced quantity equivalent to the lot size. This means a realized loss. Further such a huge full cash is blocked until expiry as position will be kept open for the meagre premium.
He is just sugar coating the inherent risk in writing options
I want to clarify this…you said huge cash is blocked…do u mean entire contract value is blocked or margin(span+exposure minus premium) is blocked until expiry?
Only margin amount is blocked.not entire contract value. But that itself is huge.
Personally i advise not to sell options. One event can wipe ur entire capital. The other day when nirmala announced corporate tax cut people like pr sundar lost entire collateral. I heard he sold his costly car to settle the loss.
Dont get lured by 10,000 profit. Loss will be in lakhs. Gambling den
Let the option expire if u r okay with buying the lot at 90.
U will keep the entire premium but u will have MTM loss in stock because u have to buy it at higher than the market price.
Ha ha…do you know who sells option? There can be loss sometimes…but if you are smart you can be winner…and don’t talk about sundar…do you know how much property he has?
That name is misleading…it is for HNIs who want to buy a stock at certain price irrespective if it going down further. They earn premium by regular put selling until it goes down below their strike.
It’s a pretty good strategy given you have enough money, time & patience. You can limit your losses or even get out winning by properly executing Bear Put Spread Strategy from a loosing trade.
This strategy works very well & generates regular income if you execute this on defensive stocks like HDFC bank, ITC etc.
No, who is Sundar?
How much property he has?
Why on earth he is in this discussion anyway? What’s the connection? How much money we are gonna make by knowing about some Sundar anyway?
