I am seriously planning to do it, but wish to be aware of the risks.
What if i sell deep-deep OTM options for BankNifty say, 2000 points away and 2 weeks to expiry?
The reason being less MTM fluctuations.
Generally there is a huge bid-ask spread for such options and illiquid.
Will there be any risks, if i leave it till expiry and it expires out-of the money?
I read about a twitter handle where he mentions he lost 18 lakhs due to selling illiquid deep OTM options although it expired OTM (though it was stock option), since there were no buyers. So, whatever higher price his broker got was covered, but what if i sell index? Does it have similar risks?
There is no risk if options expire OTM. But the risk with such a strategy is that every once in a while markets move quite a bit and you could potentially lose more than what you have made for many months or more.
If options expire OTM there is no risk. In the example, maybe the stock options expired in the money and hence got exercised.
Hi @nithin ,
Thanks much for the response. In between i was able to track the screenshot of the twitter guy, and his email to Zerodha support.
This is very confusing. So, does it mean, MIS options left as-is even on expiry day, gets auto-squared-off by 3:20 and not left to expire and covered by broker at whatever marketprice available and only NRML options are left to be 0 on expiry day? (Applicable to both stock + index options)
Please clarify, wish to be very safe.
Yes, MIS = Margin intraday square off. The product type squares off all positions that is in MIS at 3.20 pm on all days. If you want to hold positions till expiry, use NRML. Anyways there is no additional leverage by trading MIS in options (which used to be there earlier), so you could just use the NRML product type.