If i sell nifty option 7900 ce for 20 rs, I m paying margin amount of Rs25000. In case on expiry nifty closed above 7900 then I lose total Rs 25k?

General
1

If i sell nifty option 7900 ce for 20 rs, I m paying margin amount of Rs25000. In case on expiry day nifty closes above 7900 then I lose total Rs 25k ?

2

No, you don’t lose entire 25k. Loss will be the difference of the spot - strike price for Eq if Nifty closed around 7930 your loss will be 10 points ((7930-7920 =(7900+20)) Rs 500 per lot. Margin is collected higher because of unlimited losses in writing options. Some times yes, you may lose the entire money if nifty moves rapidly upwards to 8400 level

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3

The break even is 7900+20 = 7920. for every 1 point increase thereafter u lose 50rs.

4

Thanks to the rules in India, its almost impossible to lose the entire margin amount you have put in because if your margin maintained goes below SPAN margin requirement your position will likely be squared off.

I would say the max to max you can lose would be around 30% of margin you put up unless and until there is a very bad news which pulls down the stock in few seconds (which is highly impossible).

5

20 rs is what you receive while shorting.

25k is margin blocked (just for avoiding risk, blocked by the broker).

Your profit/loss can be of two types

  • Based on premium, you square off at 11 rs premium, you get a profit (20-11=9 rupees), You square off at 28 rupees premium, you get 8 rs loss
  • Based on settlement, settlement happens after closing hours of expiry day, during which the difference in Closing Price and your strike price is calculated. If the difference is positive like Nifty closing at 7950 and your strike is 7900, 50 rupees will be taken from margin blocked, i.e. 50x50 lotsize = 2500 will taken from your blocked money and 22500 will be returned to you. So in net you are 30 rupees loss. If Nifty closes 7890, then difference comes to minus ten (-10), In this case no money is taken from you and entire 25000 margin blocked will be returned to you. You are in net 20 rs profit.
6

Thank you praveen…

7

you can also read the blog in our z-connect. http://zerodha.com/z-connect/queries/stock-and-fo-queries/basics-on-options-shortingwriting