Need one more clarification
Let’s say I am a call seller and expect market to go down.
I chose a strike price of 10000 of nifty or any stock.
If I market goes down let’s say market come to 9500.
Can I chose not to square off my position and take the delivery before expiry since I expect market to go further down as well?
Index options are cash settled, while stock options are physically settled but only if your Options expire ITM. If you do not square-off your position and leave it to expire your opinion will expire worthless if it is OTM and you get to keep premium received. If you square-off your position before Expiry there is no obligation to deliver/recieve shares since settlement only happens on Expiry day.
You can read more on F&O settlement policy here.
Thank you very much for your reply.
Please bear with me as I am a novice and haven’t traded options before… I still have 3 outstanding questions.
So even if I short something (call sell or put buy), I can take the delivery on the expiration day? And after that if the share price goes down, I will have profit and vice versa…
Let’s say I sold the call and on the expiration day, I found my strike price is not advantageous(the price of stock went up), in this case my strike price is OTM, but I would like to take delivery regardless of my loss, can I do that?
Can’t I rollover my contract to next expiry in option?
Thank you very much!
These are the rules of physical settlement.
- If you are Long Call and it Expires ITM you will receive shares.
- If you are Short Call and it Expires ITM you will have to deliver shares.
- If you are Long Put and it Expires ITM you will have to deliver shares.
- If you are Short Put and it Expires ITM you will receive shares.
So in your case, if you Sell Call you won’t receive shares if it expires ITM, you will have to deliver those shares. Same will happen when you Buy Put, if it expires ITM you won’t receive shares you will have to deliver them, In case options expire OTM they expire worthless and there is no obligation to receive or deliver shares.
If you want to receive delivery of shares you will have to either Buy a Call option or Short a Put option and they will have to expire ITM.
You can, read more here.
If you are newbie I suggest you to learn Options basics on Varsity, before you dive into Options trading.