Is my option expiring ITM or OTM?

#1

A very basic question related to option writing on expiry day…

Let’s say…

Nifty was at 11800 when I sold a NIFTY 12000 call option at around 1 rupee in the morning. In the last 30 mins, however, there was a big rally that took NIFTY to 11900 and the 1 rupee option goes up to 5 rupees by the time of closing.

Now, my doubt is:

Is this option expiring ITM or OTM? Since the strike price was 12000 and NIFTY did not reach that level, I believe that it was OTM. So, if I don’t square off the position, I should get to keep the premium. Am I right or am I missing something?

But if I am right, what confuses me is the fact that the 1 rupee option I sold was at 5 rupees…so how could I have been in profit?

Would really appreciate insights from experts.

@Sensibull - Abid, I can use some of your awesome explanations :slight_smile:

#2

This seems highly unlikely. Which expiry did you sell in? April 25th?

#3

I think the main point I am trying to get to is that what qualifies as OTM in this case- if NIFTY doesn’t cross 12000?

What if Nifty goes up to 11950? If I don’t square off, will I still get to keep the premium I received?

#4

Hi @Sensibull…would really appreciate clarity on this topic.

#5

If you have not squared off, and the eventual expiry is below 12000, the premium on the option will be 0 at the expiry and you will get to keep the whole premium. Meanwhile, temporarily, the premium can go up and down with the index. Even if it goes to 5 rupees, when Nifty stays at 11950, the premium will keep decreasing as long as nifty does not cross 12000

Sorry about the delay in reply. Not a regular here. I do hope this clarifies

1 Like
#6

Thanks a lot, Abid/Sensibull Team !