Option position not exited use case

F&O
1

Consider the following scenario. Wanted to know how much loss will I have in this case

Sold 3500 CE 250 lot size (1 lot) at 50 Rs premium
Sold 3900 PE 250 lot size (1 lot) at 60 Rs Premium
After the monthly expiry, the share price is 3700 Rs

I don’t close my 3500 CE and 3900 PE positions. How much loss will I have in this case?

Note: I do not have shares of this company in my holdings (demat account)

2

Your loss is Rs. 400- 110 = Rs. 290/contract

3

Rs. 290/contract mean?
Do you mean 290 * l250 (1 lot size)

4

yes, since you didn’t mention your lot size, i couldn’t give you the full value. Yes, so its 290 x (insert lot size-250) =72,500 . Its a weird inverted strangle, why did you set this up?

1 Like
5

Thanks. I have sold CE and I do not have any shares in my demat. I was just thinking of how I can reduce the loss or what can be done if I am unable to exit my position… I can take the PE position so that it gets adjusted with the CE in case if I am unable to exit my CE position due to low volume.

One more question… will CE be adjusted against PE if I have sold 3600 PE? In this case, the PE will expire worthless, and I will get the premium, but will it be adjusted with the CE position because I don’t have shared to give delivery? (sold CE)

6

I think you need to revisit the basics.

Also, you didn’t answer his question… Why did you set this up?

This position has a MINIMUM GUARANTEED LOSS of 290/contract. How?

Premium Received = 110

  1. If the price at expiry is between 3500 and 3900:
    Value of CE = Closing Price - 3500
    Value of PE = 3900 - Closing Price
    Value of position = Premium Received - Value of options sold = 110 - (3900 - 3500) = -290

  2. If the price at expiry is greater than 3900:
    Value of CE = Closing Price - 3500
    Value of PE = 0
    Value of position = Premium Received - Value of options sold = 110 - (Closing Price - 3500) < -290

  3. If the price at expiry is lesser than 3500:
    Value of CE = 0
    Value of PE = 3900 - Closing Price
    Value of position = Premium Received - Value of options sold = 110 - (3900 - Closing Price) < -290

I would not recommend any management/adjustment of the positions, since you have already bitten off more than you can chew, and it might just make things worse. Just exit the positions if you can or hope the value stays the within the range till expiry.

Maybe others will disagree and provide different guidance.

Please revisit Varsity by Zerodha, and maybe also Option Strategies by the OptionPlaybook

Best of luck.

2 Likes
7

I agree, best to exit ASAP , possibly do more research before getting back in the game.