How much should I pay the buyer of put options in this case?

Current EQ price =129.40
Bullish expectation, so short on put options.
Strike price=135
Premium LTP=5.5

According to span calculator
Premium recievable=45,000
Total Margin blocked = 1,43,745

Now my question is :
The contract is IN THE MONEY. If it were to expire today itself with underlying price at 129.40, I guess I have to pay the buyer the premium at which he bought. So how much is the loss I would incur ? This is a loss making bet isnt it ?

If it were to expire right now you would have to pay back Rs 5.6 (135 -129.4). You are receiving Rs 5.5 to short it.

The only way you will make money is if NMDC stock price goes up above 129.5 on expiry. If you believe it, maybe just buying futures would be better as they are more liquid and you can enter/exit without any impact cost.

Ideally good to write options where you can capture time value. So for example, if the same put was trading at 6.5, you would be getting 1 point as time value. So now you would not only make money if NMDC goes up, you would also make money if NMDC price stayed where it is or even went against you for another 1 point. Increasing the odds of you making money on this trade significantly.

Do check out the options module on Varsity.

1 Like

Thanks a lot for the clarification.
even on a sunday you work : ),Kudos.

Yes, I was reading varsity pages till now.