If I short far otm options in the expiry, do I need to give compulsory physical delivery or just it applies to ITM options ?
Only applies to ITM.
At what price i will be allotted?
Lets say I sold SBI at 140 PE at 5 premium . current price is 150.
By the time of expiry, it went down to 110. What price i will be allotted the shares?
Your buy average would be 140, premium you have received 5rs so 25 rs loss.
If i wait till expiry and let it expire, then i don’t need to pay to the buyer? and share will be allotted to me at 140 rs. right?. so No loss, i will have 3000 shares at 140 .
When shares are available at 115 in market you are buying at 140, so that is a loss right? if you intend to hold shares and sell them at higher prices in future then it is not but at that movement it is a loss on paper but not realized till you sell.
You need to pay 140*3000
That’s fine. I am just curious about the options i sold. The option i sold will not have any loss if i wait till expiry and i will be allotted share.
Now how buyer will exercise and get profit out of it… Lets say 100 contract sold and none of them squared-off by seller. and waited for delivery. Now how option buyer will exercise it ? who give diff. premium amount to buyer?
Buyer will deliver you shares, he may be holding them or theoretically he can buy at market price of 115 and sell you at 140.
okay. got it
I have a specific question regarding Credit Spreads and Debit Spreads.
If I have a Bull Credit Spread (Sold Put and then Bought a lower put). Example CMP at 100. Sold 100 PE and Bought 95 PE. Breakeven at 97.5.
There are three scenarios that would arise:
- Price is above 100 on expiry. Both options expire worthless and Credit Spread is in profit. Is any delivery obligation required here?
- Price is at 98 on expiry. Credit spread is still in profit but one leg (100 Put) is ITM. However, since this is a hedged position, do I need to take/give any delivery? Are there any extra charges as such?
- Price is at 94 on expiry. Credit Spread is in loss. Both legs are ITM. Again, since this is a hedged position, any give/take delivery is required? Any extra charges as such?
If it is a Credit or a Debit Spread, irrespective of wherever the price is upon expiry - does one need to take delivery?
No physical delivery when options expire worthless.
In case your one position expires ITM there won’t be netoff, you are obliged to give/take delivery. in your case you are Short Put so you are obliged to take delivery.
In this scenario it will be netoff.
It depends on your Option’s moneyness as explained above.
What if it is index and one option expire in money and other otm in credit spread?
Index options are cash settled.
Suppose I created an overnight debit spread… assume net debit is 1L… now if I exit that spread next day then will I be able to use that 1L debited money on the day of exit?
Premium received from squaring-off your long option position or shorting options can only be used to take long option position on same day, for all other purposes you will be able to use those funds from next day onwards.