Options if no buyers for in the money option, how one can get square off the trade

#1

If I bought bank nifty put option Dec 2014 17700 pe at 200 rs and luckily it went down to 16000 due to some crash. And there are no buyers of this 17700 pe or premium showing very low price compare to the difference of underlying security. Can this get settled even though they are no buyers? and how much profit one can expect if this happen?

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#2

All option contracts that trade on the European market which means you can exercise them only on expiry.

In this case, you will have to wait until you get a buyer for the put option you are holding or wait until expiry. On expiry it gets exercised and you’ll receive the credit for it, meaning on expiry if the Bank Nifty Index closes at 16000, you’ll get a credit of Rs.1700*25 (17700-16000) to your account.

This is why its best to trade in liquid options than illiquid ones.

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#3

Like Venu said, if there is no liquidity you will not be able to exit it with profit. One of the things that can be done though is to use other F&O contracts to make your position neutral at that stage. Which means, take positions on other F&O contracts, so that market moving up or down from there doesn’t make any difference, so you are synthetically locking the profits.

So if you bought 17700 puts at Rs 200, when Banknifty drops to 16000 it should ideally be atleast 1700. If you don’t find a buyer ready to pay you 1700, the best thing for you to do would have been to buy Banknifty futures at 16000.

If Banknifty goes lower, futures looses money, but your puts gain the same value. If Bank nifty goes up, futures make money making up for any loss in your puts position.

You can exit both the positions as soon as you are able to get liquidity in the 17700 puts or hold it till expiry.

Hope this helps.

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#4

If u have bought Put Option with Strike price 17,700 and Bank nifty expires at 16,000 , Ur contract is in the money… Even if no buyer is there to square it off, It will lapse in ur favour… So dont worry…

Only thing to b worried abt is STT but I think even that is charged on Option Sellers so if u r long in PUT Option u can relax and get profit at expiry if u let it lapse.

#5

Just be careful not to place any market orders for this contract, if there are no buyers.
Your order will get placed at lower limit price of Daily Price Range (circuit limit) of the premium.
It will get executed at losses or less profits when someone places a buy order.

Anyway on expiry it will get settled, as Venu says.

#6

Thank you very much…well explanation

#7

Thank you sir…really very helpful explanation

#8

Can anyone explain, how to find banknifty sellers in Call options?

#9

Yes, long ago once I had a bad experience, the Brokerage people without my knowledge squared off with less profit (due to huge differences in ask/bid rate) at around 03:25 p.m. And they justify their act saying if they left after 03:30 P. M. my option position get exercised and STT of 0.125% will be levied heavily by exchange on strike price.

But real fact is I’m ready to pay penalty STT of 0.125% for my strike price, as it is not more than either ₹600-₹900, but what I get will be huge after expiry settlement. But here Brokerage people has limited knowledge and makes blunder.

#10

Today is May 13, 2019. BANK NIFTY Lot size is 20. From the above question, I assume if there is no buyer for 17700 PE, then u left as it is on expiry day which expires at 16000 spot, after 03:30 P. M ur position is exercised to settlement and u made a profit of 1500 points
(1700 points-200 points premium) . But here as per new Sebi rules, STT will be levied heavily for this exercised contract.

But don’t worry, u will be in profit. The STT calculations are as below.
*STT on exercised options on expiry = 0.125 % x (strike price + premium) x quantity

In ur case, since ur position not closed due to no buyer and got exercised, the STT of 0.125% u need to pay for that One Lot of Bank Nifty is as follows.

0.125%=0.00125
17700-16000=1700
Premium of 17700 PE=200
So total points gained=1500
Which is 1500x20=₹30000/-
Lot Size=20 (Now in May 2019)

0.00125 x (17700+200) x 20
= ₹447.5/- u need to pay penalty.

But remaining ₹29,552.5/- is ur profit (excluding Brokerage, service tax, stt for non- exercised value, transaction charges, GST., etc).

However u will be in profit atleast for ₹29,500/- after deducting all Brokerage and charges.

But nowadays Bank Nifty is highly liquid and henceforth there will always be a buyer/seller for 2000 points variation.

Most of the above scenario (liquidity problems) will happen for stocks and not in indexes.

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#11

What happens in this case , whats the profit or loss i make ?

CMP 17k , i bought 17K put@ 1rs .
Market got close and CMP is 17003 and premium is 2 rs

profit= (Current premimum price - buy price ) i.e (2-1)= 1 rs
STT if squared off before market close assuming IIM say CMP is still at 17003 is
STT= premium * 0.125 *qty --> i.e 2 * 0.00125 * 20 = < 0.05 paisa

If not squared off then
STT= strike price * qty * .0125% —> 17003 *20 * 0.125= ~425 rs

Overall loss made from this trade is 425 rs- 1rs = 424 rs

In above question , this guy was lucky that market fell sharp and made good profit …if market would have been hung with IIM option almost near to option price , then he’s doomed

Correct me if am wrong ?

#12

0.00125 x (17700+200) x 20
= ₹447.5/- u need to pay penalty.
Hi, friend all your calculations is correct, but a little correction that premium is not of buy and evaluate on premium what you get by exercise. In this case 1700.