How profit calculated in options on expiration? Do you have the option of both square off and excercising in expiration day?

----->>How profit calculated in options on expiration?

i know when you square off before expiration day. Profit is calculated as Premium received-Premium paid=gain/loss. How about excercising on expiration day? How its calculated?

----->>do you have the option of both square off and excercising in expiration day?

Can i square off if it is more profitable?

Option Settlement on expiry (exercising): You paid some premium to buy an options lets take it as 30 rupees The option you have bought is having strike price of 2500 for example. When the option expires (after the closing of market on expiry day), the closing price will be settling price. If closing price is 2618 for example. Then your profit is calculated as 2618 - 2500 -30 = 88 rupees. Having said this you need to pay a higher STT when compared to squaring off options which you have bought.

Options square off before expiry: Yes you can square off, if your option is making profits, you need to do it before closing of trading hours on expiry day. STT will be comparatively less.


Thanks alot man!

@astro Sir how to calculate time decay…

This is just a rough estimation.
I have explained this to Arun some time back. Check whether you can follow the same.

I will give one example
In the option calculator, enter these values
Underlying price, here enter Nifty Price as 8300 assuming this the price at which you buy the Put option
Exercise Price here enter as 8400, You are buying 8400 PE
Interest rate enter as 8.8 approx
Dividend yield 0
Volatility enter India VIX value, for time being assume 15
Leave the rounding and graph increment

Now in days until expiration enter 30, assuming you are buying on 01st November
Click calculate you will see the option price as 163.32 rupees
Now change the days of expiration to 1 day and see the value, it says 99.92
This means if Nifty stays range bound within 8300 price, your price will decrease day by day.
in 30 days time price reduces from 163 to 99, almost 64 rupees of the option price you bought is only time value and sure this is going to reduce every day. This is time erosion.
Hope you get what I am saying!

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