What happens to In the money/Deep in the money Index Options buyers on expiry day. How much can they maximum lose considering the recent Hindalco stock options buyer big loss issue. Is the max loss limited to the premium paid or can the Index option buyer lose even more just like the Stock options buyers. Also can Options sellers buy In the money/Deep in the money options to Neutralize Delta if their Credit spreads are in a loss on the expiry day and thereby reducing their losses or come out profitable finally. Please check and advise ASAP.
For Index Futures and Options, there is no concept of physical settlement. Index F&O are cash settled.
If an Index Option expires ITM, it is settled by the exchange at the intrinsic value, and that much amount will be credited to your account.
Also, apart from exchange charging STT at 0.125% on the intrinsic value there are no additional costs. This STT is applicable only on ITM Long Options, not on Short Options as it is already paid when short position is taken.
You can buy ITM Options but as you go far deep ITM, the liquidity gets that much lower.
Hi Shubh,
Thanks for the quick response. I trade only Index Options, suppose towards expiry, in a Credit spread, if one of the short strikes gets breached, is it wise to buy an In the money Options (with a Delta of 0.90) and above of the same expiry to neutralize Delta and thereby lift up the break even of a Credit Spread, doing this we can end up being profitable or at least drastically reduce our losses.
What are the possible dangers/risks for an In the money options buyer particularly on the expiry day. Can there be a loss which is more than the premium paid? Considering the recent Hindalco options buyers huge losses, is there a risk of losing huge sums of money like the Stock options buyers if we buy a In the money options as an hedge on the expiry day in case the short strikes are breached. I am talking only about Nifty and Banknifty, I never trade stock options. Please check and advise on the feasibility of the above.