when strike is ITM u have to deliver bcz u sold CE option. whatever the MTM be doesn’t matter.
Most probably not
1.Below 490, 490CE contract is worthless. u will gain 20rs as premium. no need of delivery
2.B/W 500-510 the premium of 490CE expires with 10-20rs premium. but even if your MTM is in profit you will get that profit and need to settle the delivery
3. 510+ your MTM goes to loss on expiry whatever the loss be you will pay it and you should also deliver stock
When will one be net profit considering delivery and option value like when 520CE becomes ITM and then one can deliver at 520 with some loss in option so net is profit…
What other case can lead to net profitability…
If your selling 520ce and if the contract is ITM then you have to delivery the shares to the buyer. Which is loss bcz u need to buy shares and give it to him.
And vice versa if you buy 520ce u will be getting shares for 520rs avg price.
On the day of expiry, premium price will be ~30 and you position will show (-10 x 100) = -1000, but this is notional. You already have received 20 x 100 = 2000 , when you sold the option.
But your margin gets blocked and will increase as your position moves deep ITM. you should have sufficient margin in your account (on expiry 40% of the contract value = 40% x 520 x 100 = 20,800), otherwise you will get a margin call, also your position may get squared off (means your -1000 notional loss becomes real )
Thank you for explaining so nicely.
Sorry for lot of doubts.
Even if goes beyond 550 assuming 600 or so. Then prem received would be 2k but loss would be 60points assuming it goes 600. so that will result in loss?
it is at 600. so in cash it would be 20x100+ 20x100 from options=4k, what is with 60 points options gone itm?
I would be in net loss when it goes 600?
2k + 2K is yours, that’s your profit, if it expires anywhere above 540.
Only your notional loss increases ( 60 points in this case), which means whatever you left on the table, as we say, is more than what you grabbed.