Help understanding p/l for close vs waiting for settlement price

#1

Hi,

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!

#2

@siva @Karthik Hi, I had asked this question yesterday and have not gotten a response in 24 hrs. Could you help? Thanks.

#3

Let the Weekend Pass, Also there is no such SLA here in Open Forum to make reply within specific time duration :smile:
The team is very friendly, you will get a reply for sure. Wait for a while. :wink:

#4

Don’t complicate things, remove futures out of it. Only for options if you let it expire ITM you will have to pay higher STT on total contract value. Check this for more.

#5

@Siva thanks for your reply.

From my understanding if the underlying asset is compulsory delivery, and if I have off-setting contracts, eg. Long Put and long futures I would not have to purchase/sell the stock.
Now my confusion is options premium vs contract value, as I gather STT in futures will be same, regardless when i sell it. My I correct?

Further reading the links you had sent and along with the assumption that off-setting positions will result in non-excersise automatically.
Taking the above example, and my long Put being ITM, will the SST be;
.05% of premium, in this example rs. 49 settlement price
or
.125% of 150, 150 being the strike price, again i am assuming contract value means strike price.

Thanks for your help.

#6

Please go through this thread, it has many examples.

#7

@Siva, thanks your reply.

i read the link you gave. Couldn’t find what I was looking for. Guess you don’t know either… I’ll just keep looking. Maybe stackoverflow…

Anyways, thanks for your time and help bro. Cheers!! :smile:

#8

This has been answered on the thread, it is not so difficult to find. Anyhow
Contract value is (strike+ premium) * lot size, if one closes it STT will be on premium only, ie premium*.05%, if you let it expire ITM then stt= contract value* .125%. STT is only on sell side.