I am new to options and I have some doubts. I was watching a youtube video where that man was talking about taking/giving delivery of shares.
What happens if I don’t square of my options positions on expiry day and the position is in the money?
Let’s say i sold a strike 1000 pe and a strike 800 ce and on expiry apit was 900 making both calls ITM, what will happen in this case if I don’t square off my both positions? Assuming the total premium received as rs250.
If you are trading stock options and on expiry if you didn’t squareoff your options positions which are ITM then your it will sattled physically…
For ITM call option, if you are long then you have to take delivery or if you are short then you have to give delivery.
For ITM put options, if you are long then you have give delivery or if you are short then you have to take delivery of the underlying.
As both the call and put options expires ITM, in short call you have to give delivery and in short put you have to take delivery… So it will be netted off…
And margins requirement will increase during expiry
If you short nifty 15900 pe at a premium of Rs 50 and if it expires at 15824 at the expiry, then it will expires ITM. So you will be making a loss.
Your loss will be :- strike - spot - premium recieved
(15900-15824)-50 = 76-50 = 26* lot size = 26* 75 = 1950
There are no charges for letting your OTM position expire. It’ll expire worthless and if you’re a option buyer, you’ll lose the entire premium paid and if you’re a option seller, you’ll get to keep the entire premium received.
Not always… If it’s confirmed that the option position will gonna expire OTM i.e worthless then it will be better to square it off before expiry then you loss will be little less because of the little extrinsic value the option has…
Lets take an example, let say you buy an ce of nifty at Rs 50 ( high extrinsic value) considering you bought an ATM ce and according to the current price it is confirmed that the ce will expire OTM so if :-
you let it expires it will expire worthless or
you can square it off before the expiry.
So in case 1 you loss all your premiums
Loss:- premium paid * lot size * no of lots
And in case 2, you square it off when it still has some extrinsic value.
So loss:- (premium paid - squareoff price)* lot size * not of lots.
I personally close it at 0.1. Usually this will happen around 3 o’clock. I use that margin for selling deep OTMs of next week. Most of the time these will lose at least 2 points before the close of that session itself. And if next day we have a flat opening another 2 points minimum. So my brokerage cost is covered over here.
It can go against me as well if vix shoots up the following day or there is a huge gap up or gap down.
My past experience shows 90 percent of the time it has been beneficial.