Then just stop only expiry contract to buy on expiry day rather stopping entire process for option buying.
It’s not 100% guarantee that only option writer makes money or can’t lose entire capital on expiry day or entire 1lakh as per your example.
Let’s test one hypothetical example for expiry and test what is more risky option buying or option selling with pledged share margin
XYZ 100 quantity currently trading price @ 100rs pledged with an haircut 10% so margin received 90000rs.
Same XYZ 100 strike price Call @ 5 rs with lot size of 100 quantity.
A) Option buying require = premium amount
B) Option writing require = approx 100 (current price ) *100 (lot size) @ 15% (Span + Exposure) = 1500rs - premium received
Let’s start the trade
- Option Buying Call 100 strike price @ 5rs
90000 (pledged margin) ÷ 5rs comes to 18000 quantity i.e 180 lots
Outcome
If on expiry day stock closes at 80rs then 90000rs becomes 0 and pledge share value becomes 80000/-
If liquidated at 80*100 = 80000 rs still 10000 rs chance of default by client.
- Option Writing Call 100 strike price @ 5rs
Margin required (refer point B above)
1500 - (5*100 lot size) = 1000/- per lot required for option writing.
Now with 90000÷1000 = 90 lots (approx) I.e 9000 quantity can be done option writing.
Outcome
If on expiry day stock closes at 120rs then 90000 option writing becomes -135000 and pledge share value becomes 120000.
If liquidated at 120*100 = 120000 rs still 15000 rs chance of default by client.
What is more Risky to broker interms of default option buying or option writing on expiry day?