Just checked NSE. This is what is mentioned.
Options Contracts on Index and Individual Securities Final Exercise Settlement Closing price of such underlying security (or index) on the last trading day of the options contract.
https://www.nseindia.com/products/content/derivatives/equities/settlement_price.htm
Closing price of underlying is arrived by last 30 min weighted avg price.
If you calculate simple 1 closing average of underlying (without weightage, which is a tedious process, since we wont have all ticks etc…) it will be much closer to actual weighted average closing. (may be a +/- 0,02% ).
I am not sure if I understand teh last part about the weighted average, for instance nifty today closed at 11275, will the calculation for today’s weekly nifty expiry for 11200 CE , use that as the price or will it be something else
?
Yes, 11275 is used for calculation. So intrinsic value at expiry for 11275 CE would be 75
so then what is this “weighted average” concept??
Average price of last 30 mins i.e. 3-3.30 pm is considered as closing price for the the day. This is also called weighted average price.
thanx, is that price got from weighted average used anywhere??
@sohnythomas It’s the final closing price for the day. Like today it’s 11257. So 11275 is the last traded price for the day whereas 11257 is the weighted average price as well as closing price for the day
What is the risk free rate that we should consider to calculate the option pricing or IV (other than last day of expiry) ?
a) 0.01% as a nominal rate because we are not loosing any opportunity cost for money in trading account.
b) 10% as considered by NSE ?
c) State Bank Saving Interest Rate @ 3.50%
d) Government Bond 1 Year Rate @ 6.25%
What is the risk free rate that we should consider to calculate the option pricing or IV ( last day of expiry) ?
10% as stated in NSE
How to calculate the same?
If not getting down to complexity of calculations of average price, just add a 30 day Simple moving average line on 1 minute chart, the result would be exactly same.
nifty closing price and settlement price are more or less same today at 11980. What will be the settlement price of 11950 call option that also expired today?
I see nifty spot closed at 11,946.75, so 11950 call expired out of money, it’s value will be 0. On expiry day spot values are considered.
Can you please tell me what will be the settlement price for 11950 PE in that case? Will it be 3.25?
Right, but one should also take STT into account, STT will be around 14 to 15 points so in this case it would not make sense to exercise it and better to let it go off.
Thank you. Perhaps this issue will not be there after budget is passed. I read something like that today in one of the whatsapp messages.
What is meant by averaging average of what
The final closing price for the day is Weighted Average Price of the last 30 minutes of trading. You can read this post to know how Weighted Average Price is calculated.