If I sell a call of HDFC Bank for say 900 strike price quantity 500 and premium 20 rs. for 25 June 2020 expiry.
Let’s say date is 5 June 2020.
I receive the premium of rs 10000
1.What if I square off my position on 20th June with a premium at 15 rs? Can I do that? What will be my liability after that as per contract? If stock price crosses my strike price, do I have to still buy or sell shares or pay to the buyer on expiry date?
I had the same question as I thought that as an option seller, you cannot exit until expiry. I did consider reading varsity’s option module but nowhere did I find any mention of any timeline flexibility (except expiry) for exiting a written option. I do know that we can exit anytime as an option buyer, so wondered if it was possible for an option seller too, to exit anytime. Thanks for raising this question @mmr
Also, in this example, the premium received will be adjusted to 5 rs. instead of 20 rs., as you squared-off at 15 rs. on 20-Jun (i.e. Rs.20 sell minus Rs.15 square-off)… So premium received will be Rs.5 * 500 quantity = Rs.1000
Another rookie question based on same example, do we need to take any action on the ‘expiry date’?
Is my understanding correct that we square off to book loss or profit before expiry date but if trade goes our way (i.e. spot price is < 900) then we need not take any action and the option expires on the expiry date.