I would like to know how to calculate P/L cost in settlement of an option.
Reading the blog on STT trap, i understand if I have off-setting contracts, I do not need to do physical settlement.
So my question is regarding SST calculation. What is the difference if i had closed verses letting it go into expiry.
I need to know the rate difference to calculate P/L in closing verses settling.
Say script ABC has lot size of 1000 and strike price at every 5.
ABC is trading at Rs. 100
I hold a PUT option at Strike price 150
And I have a long futures.
On expiry day ABC is trading at 100, whereas for my PUT option the best price I am getting is Rs. 45
I believe the price will settle at 49~50 so closing my position at Rs. 45 would be a loss of (49-45)*1000 = 4000
So if I close my position at;
Future @ Rs. 100
PUT @ Rs. 45
vs. not closing
considering the underlying asset closes at 101
Future settle price Rs. 101
Put settle price Rs. 49
Knowing how the SST will be calculated will help me evaluate at what price I can close vs. settlement
Thanks for your help!