I have read selling a call option carries unlimited risk, and further here I have to keep a margin also.
I have also read that when we square off it does not carry any risk, it is exiting from the market
My questions are:
are selling a call option and squaring off are different strategies?
is there no margin involved in squaring off an option?
when I square off will there not be any contract (call or put) created?
As I am using Zerodha Kite, are there different options to square off and sell a call option in the platform?
I will be grateful if my questions are answered in the same order, so that I can understand easily and clearly.
Thanks in advance,
Doctor
Thoeretically selling call option has unlimited risk. It is also called writing call options. In this case your view on the underlying is bearish…Yes you willl require margin to sell/write options.
First you sell a call option( which is known s creating short position)…if you are closing the position if in profit of loss is called sqaureoff…squareoff refers to closing a existing open position (bee it short or long)
you wont require any margin in closing existing open position ( infact your margin will be released, which was blocked earlier…once you square off the position)
squaring off existing contract does not create a counter position.
options will differ as per different strike price, you nee to find that in market watch
Sir,
Please clear my doubt through an exmple:
Suppose I buy a Call option (lot) with a premium of Rs5;
and before the expiry if the premium reaches Rs 10.
Now do I have three options as follows:
1-I can square off the call options and make profit of Rs 5; or
2-I can sell (write) that call option assuming that the prices may go down; or
3- I can wait until expiry.
Please bear with me with patience as I am a beginner. Though I have read the Module, I could not understand these issues, with reference to the risks involved, particularly in the first two points.
With regards,
Yes, in this case profit of Rs 5 will be made (ignoring brokerage, taxes, etc)
If you had previously bought the Call option, then selling it would only square off the current open position and you will have your profit. If you want to create a new Sell position with that call options in which you are already long, you will have to sell 2 Call Options… I Call will square off the current open long position and the second one will create a new Call write (sold) position…
If you wait till expiry then either your long call will be exercised if it’s In-the-Money or it will become 0 value if Out-of-Money in which case you will lose the Rs 5 that you had paid to buy the Call.
First of all you need to understand the concept of opening a fresh position and closing a position. Squaring off means you are just closing the existing open position(just reversing the trade…either in profit or loss). In the options context this gets tricky for new guys…Lets says your view is bullish then you buy call option, which is long position (for Rs 5)…after few minutes/hours/days you see premium is appreciated (say to Rs.10) and you want to book the profit…you are closing the position ie selling the options )that was bought earlier…it is alo called as squaring off the existing positon…Now keep in mind you are not creating a new sell position here…Howver you cann aalso write/sell call options if you feel prices will go down…you squareoff by buying it back later at lower price
Hi,
Thank you for your kind reply. Today I could make a satisfactory profit on the knowledge I gained by you and others too, who helped in time.
With great regards,
Doctor
Hi, (I’m new here)
Since the discussion is quite old now, yet I hope someone will clarify on my following points.
So, from above discussion if I understood correctly, that Once I buy, say, One Lot of “Call Options”(contracts) by paying a premium of, say, Rs.5000 in total, then I do not need “margin/funds” in my account to sell what I’ve bought already, that is to say that I do not need money to sell that One Lot I bought earlier.
But, If I wish to sell One Lot of “Call Options”(contracts) which I do not own(It’s called writing call options I’m assuming) then I do need Rs.X “Margin/Funds” in my account and that amount X can be found out using the Zerodha’s margin calculator.
Is my understanding (as stated above) correct ? If it’s not, what am I missing here, please let me know. Someone please comment on this. Thanks in advance.
_
Mayur
Hi All,
Just have a doubt on exiting short call option .
I made a position by selling call of x stock at 5 rs .
As the stock price goes down , call price reduced to 2 .
Now I want to exit the position by collecting profit of 3 rs before expiry .
So during my exit wht exactly happen in this scenario.
Also consider the case when there are no buyers or no liquidity at all .
Would request someone to help me on understanding this .
When you short, you have an open position left to be closed by transferring it to someone else or let it expire. Later, when you buy the same contact the risk of the P&L on the existing position is transferred to the next person who is buying. If there are no buyers/liquidity then there is no option to close the position, it will go for expiry settlement. You should Learn about options from Varsity.
Can i square of my sell options position anytime like buying a call option or am i bound to carry it until expiry for an instance if i am selling call option of nifty and after one hour i want to square of my existing selling position.Can i square off?
I have just started in options trading and not getting confidence in selling options.
Thanks for helping me out
I didn’t find anything related to square off in module though i have started trading in options but was not confident in selling!!
i have a NALCO call option with 26 may expiry that i got at 1.85 and it is now 0.45. Now i am at a 20k loss and want to sell the option. How do i do this?
Paytm Money is asking my to my 63k when i try to exit the option.
