Options expiring worthless

F&O
1

I have read for sufficiently long time but still did not get clarity. Please clarify my doubt in the following live situation.
SBIN Spot :297.45
SBIN dec 230 PE : 0.10 and there is a buyer at 0.05.
Assumed SBI price on 27th Dec 2018 (Expiry day) : 280

Now if I short it at 5 paisa, and don’t square off, what will be my profit or loss? I checked on the zerodha calculator giving buy price as 0 and sell price 5 paisa and it shows a profit of Rs.126/-. Will I get this profit or is there a catch? Someone please let me know what exactly does it mean when we say that the option expired worthless if the spot price is way above the strike price at which the put option has been sold. Thanks in advance. It is not worth the effort because the return is just over 5% assuming that there is no calamity occurring before expiry.

2

You will get the money that the option buyer paid you i.e 5 paisa, so a net profit of 126/- per lot.

Selling very OTM options is a good way to make money.

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3

Thank you. But why will someone buy it for 5 paisa? Will they be holding the opinion that the market may fall that low before the expiry on 27th? Strange.

4

what if there is some black swan event and price drops to 200 rupees … u will lose like 20k INR , your wish to take risk , it wont happen but still , if there is SL market option u can try , still not worth it… and there is buyer because , u can see price went to 0.15 paise yesterday … so buyer makes double profit rarely

5

Very low return for option writing.

Try an option strategy with good risk reward ratio. If you are bullish, bull put spread may give good return

6

Thanks. That is what i mentioned in the post.

7

i am not that expert. My intention in writing the option is to get the premium in most cases. And buy the underlying in case the spot price falls. That is the reason I quoted SBIN and not a small or little known company. I mean if I was prepared to buy SBI at 250/-, it does not matter to me even if it fell to 150 because my assumption is that it will come back to 300 again.

8

My point is premium of 126 rupees - brokerage - tax after investing more than 50k per lot looks very low unless you are writing multiple lots.

For an option writer who is writing more than 10 lots it would be a decent return within a week with minimal risk.

9

Agree. It is not an option even if there is no risk. I was just citing an example to clarify my doubt.

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