Hi All,
My question is on index option selling PE.
As far I understand Option selling has limited profit but unlimited loss, but still chances of having the premium money (as profit) is higher… Just on this ground I am trying to clarify few things…
Let’s say Nifty is trading at 15900.
Now as it is going up/down but I still have bullish sentiments…
But let’s say assume if my assessment goes wrong, but I still believe it will not go below 15800. This is the scenario which I am considering for the question…
So the price currently is as :
Nifty 15800 July PE is at premium at 72 (margin req = 90k)
Nifty 15800 Aug PE is at premium 171 (margin req = 88k)
Nifty 15700 July PE is at premium at 49 (margin req=86k)
Nifty 15700 Aug PE is at premium 138 (margin req=84)
Question :
a) If I sold 1 lot Nifty 15800 July PE, but market starts going down day by day… and it reaches 15750 on expiry… and I did not square off. which means now it is in ITM. Does it mean I have to consider this as cash settlement which will be done based on intrinsic value? In this case it will be a loss of 2500. Intrinsic value (50) * lot size (50) = 2500. Will there be any STT again in this case as I already sold first? Assuming I made a premium profit here as 3600 (72*50). So my net profit will be 1100 (3600-2500). Am I correct here?
b) Now lets say I want to keep risk factor low and do the same calculation as selling 15700 Aug PE at 138. (assuming even if market goes down it will not go below 15700)… If I have this margin of 84K, and I get premium of 6900 (138*50). In case market not goes below 15700 by Aug expiry, which means it is OTM and it expires worthless.
So I make profit of making 6900 over a margin of 84k. It still appears profitable scenario of >8% in 1.5 months. Am I missing any fundamental concept…
c) will margin ask be again requested from zerodha even I had kept the requested amount while selling PE on initial day?
Please let me know if I am going wrong in my understanding here…