OTM options trading

F&O
1

I have sold an OTM option which is going to be 0 on expiry. What will happen if i did not square off it till expiry?

2

Hi @Prathamesh_Bardiya

The option expires worthless and you get to keep the entire premium.

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3

hi @Meher_Smaran

someone has told me that if I don’t square off the position of OTM options which is gone 0 on expiry, the broker will square off them self and levy fine to me.
is this true?

today on 12-09-23 OTM options of fin nifty closed at 0.05. so if I would have held the short position will it be exercised or it will be squared off by the broker?

4

Hey @Prathamesh_Bardiya

Nope since the contract is expiring worthless there shall be no fine or squaring off from the broker.

Since the OTM contracts expire worthless they shall not be exercised by the broker.

You can refer to the above link shared by Meher.

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5

@KarthikAcharya Is this for MIS and Positional both, the confusion is on MIS docs its written that if the positions are not squared off by 3.20 then zerodha will square it off for you and charges will be applicable…(is this for equity trading or for FnO as well)

@Prathamesh_Bardiya Did you try this and were there any charges applicable.?

6

MIS trades are meant for intraday and have to be closed before 3.25 pm. So, yeah, this is applicable only for normal trades.

7

So if one trades on expiry day(which are MIS typically) then they have to be manually squared off even if they expire worthless is this understanding correct?

8

If you know that the options you sold is going to be 0 on expiry then use NRML order.

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9

In my understanding MIS gives you more margin…

10

There’s no extra margin available in F&O for MIS orders. Only available for Equity segment.

11

I stand corrected, No extra margin for MIS FnO

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12

Seems there is a difference between Zerodha and ICICI DIRECT how they are handling OTM options on last trading day. It should be like what Mr. Karthik is saying and Zerodha is handling. They are worthless and they expire. No need for square off. But, ICICI is forcing customers to square off and if a customer tries to get rid off them by minimum amount and by 2.30 the order doesn’t go through, they actually modify the order to market.

13

In every broker platform there are two types of order one is normal order and second is for intraday order. Every broker give different names for these orders but basically their function is same. If you sell OTM option using intraday order broker will square off it on 3.20 pm and charge penalty
So dont use intraday order to sell OTM option on expiry. You will save your brokerage also.

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14

Thanks Mr. Prathamesh.

Interestingly, they are not intraday trades. Equity Options that I wrote/sell in the beginning of the month.

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15

What happens to MIS far otm hedges which go into lower circuit and cannot be squared off ?

16

Hey @Trader_123

Because these options are out of the money (OTM), they expire worthless, meaning their value drops to zero. Therefore, if you have sold these options short, the entire premium becomes your profit. Conversely, if you have purchased OTM options, you will lose the entire premium.

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17

So are you playing khatro ke khiladi in stock options

18

Thanks for the response . I do understand that aspect , my query was as these positions are MIS and I am unable to square off , does zerodha charge any call and trade penalties ?

19

There wont be any call and trade charges if the order was not executed. Only if the order is executed call and trade charge will occur.

20

Nah, I got my share of swirling waters!!! Now, it’s just play safe, either covered calls or cash covered puts.

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