How OTM works ? Will all OTM becomes zero?

F&O
1

This query might sound very basic to people here, but being a beginner here, i want to educate myself. So asking this question.

  1. Does any CALL Contract with strike price which is greater than the price on expiry day is called as OTM ?
  2. Does all the OTM option get zero on expiry day?
  3. Now Bajfinance Jun 3000 CE is trading at . So for incoming expiry i.e. 25th June, if Bajfinance closes somewhere around 2400 or 2450 , will this option premium become zero? or it will just try to become zero?.
2

Yes.

Yes.

Premium will become 0.

Would suggest you to go through this module on Options on Varsity Options Theory for Professional Trading - Varsity by Zerodha

1 Like
3

If I have sold weekly OTM Call/Put options and let them expire on Thursday as OTM (i.e closed/bought at Rs. 0 by exchange), will there be problem in taxation? Like can IT-department question, how did you bought an option at Rs 0 and sold at, say Rs 10 ?

Or Should I square them off (buy back to close position) at Thursday 3:25pm at Rs. 0.05 ? My question is regarding taxation. Can there be a problem in taxation point, if I let them expire at Rs. 0.

Also I sold an option at Rs 10.05 (50q) and bought back at 0.05, then what is my turnover ? My profit is 10x50=500 Rs.

4

Yes OTM options become zero and any premium paid towards it will be lost. At the same time, OTM are cheaper than ITM options. Still trade with caution.

Disclaimer: Securities Market is subject to Market Risks, please consult your Certified Financial Advisor before investing.

5

No.

For options, as per ICAI guidlines, turnover equal the value of sale plus absolute value of favourable and unfavourable returns.

At the time of sale you received 500 premium. Plus your profit is 500. So your turnover is 1000.