Cash secured put option

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

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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.

So even if i wait till expiry, then also i will be paying the difference amount to the buyer? i.e at 1800.

So consider at 2300 Strike price premium was 5 rs. and on expiry day 1800 (spot ) premium becomes 25 rs . So i will be losing 20 Rs correct?

So what is mean by cash secured put here? I find this as 2 transaction. anyway you will have a loss of 20 Rs… what’s point of buying in CASH market?

In cash market if u buy at 1800 then no mtm loss.
But the put u are squaring off with a loss. Sold at Rs 5 but squared off at Rs 25. So loss of Rs 20

Exactly…Then why do we call this as cash secured put? anyway we will lose 20rs …

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.

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