I have a query regarding the new policy on options category .IT Is said that PREMIUM RECIVED FROM WRITTING OPTIONS WILL NOT BE USED AS CASH /CAPITAL. SO does it mean I cannot withdraw the premium into my bank account ???
Yes, if the new policy states that the premium received from options writing cannot be considered as cash, then you will not be allowed to withdraw this premium into your bank account.
Did you read this on the ‘policies and procedures’ page?
Yes on the zerodha policies . but why we can’t we take the premium to our home . I know that option writing is risky strategy considering it limited profit and unlimited risk . but it is also a strategy too to make profit. In other brokerages we can take the option premium home . IN case of trading index options like NITY OCT 11000 CE writing will generate a nice amount of profit as it may expire worthless.
I am wondering too sir if there has been a change in any policy. Maybe someone who is aware of this will post a reply here.
Yes waiting for a clarification regarding this
The premium received cannot be considered your own money until the open position has been squared off.
All options expire worthless on the expiry date. On expiry date the option loses its intrinsic value due to time decay. Hence it is worthless.
You can take profits only when you have squared off your positions. I don’t think any broker allows to take home premium received by writing options. There is a great risk of default. Let’s say I sell a 260 CE of SBI and receive a premium of rs 5 and at expiry price shoots to rs 300.If a person defaults the broker will loose rs 40 × 3000 (Lot size ). Hence there is generally a mark to market every day. Asking for premium before squaring off is like asking for unrealized profit on short selling without squaring off your position.
@dvram Guess you will have to amend your wordings here.
Not All options expire worthless on the day of expiry.
Options loses its EXTRINSIC value (not the INTRINSIC value) due to time decay.
Yes u R right that if option loses it value due to its time decay. But suppose I write an NIFTY OCT 11000 CE AT RS 10 and at near the end the end of expiry I squared off by buying the same . SO my difference is profit will I get to use it or not ???
Selling price 10.00; Buying price 10.00. So no gain no loss. But you will have to return the premium after deducting the brokerage.
No no sell around 10 and buy around 5 will gave me a profit Rs 5 per lot by writing options. Can I take this profit home . Sorry I should have mentioned the buying price
Can enjoy if the position is closed.