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?