Short ITM Call Expiry in illiquid stocks

F&O
1

Hi All,

Need clarification on what happens when call expires ITM with a bit detailed help.

Share Code: BOSCHLTD
I sold 17500CE at 650 and 18500CE at 600. Currently BOSCH is trading at 17600, hence lets say both the calls will be ITM at expiry. However, 17500CE is mostly illiquid and trading at 650, while 18500CE is trading at 300. At expiry both of them will be physically settled. In case I choose to square off today, I will be losing significant chunk of profit that I can bag otherwise.

How to tackle this scenario where I want to maximise my profits from the short CE? There are different options as per my understanding:

  1. Long 2 futures of BOSCH for Oct month so that actual physical delivery would not be needed as it would be net off.
  2. Buy 100 shares of BOSCH at current price (1 lot Fut is 50 shares) and let it be physically settled.

Which would be a better option or if there are any other ways to tackle this? If someone can explain a bit in detail for two scenarios:

  1. BOSCH closes at a price of 17700 at expiry.
  2. BOSCH closes at a price of 17000 at expiry.

Thanks in advance.

2

If underlying closes at 17600 on expiry day, the 17500 CE will expire ITM and will result in you giving delivery of underlying shares as you’re short, while 18500 CE will will be OTM and will expire worthless, there will be no physical settlement for this option.

It’s down to your own preference actually. Whether you want to go for physical settlement or not.

At 17700, 17500 CE will expire ITM and will be physically settled, while 18500 CE will expire OTM.

At 17000, both. 17500 CE and 18500 CE will expire OTM.

3

Thanks.

Settled 18500CE at 50 and 17500CE at 43. Learnt my lesson to not trade in illiquid F&Os.

1 Like
4

This is how the market teaches us, the ‘Hard way’.
But don’t worry, mistakes are common in the market. These mistakes will make us a better trader in the future.
All the best.

5

Actually the profit was around 60k, so not that hard. Just the illiquid stage gives a lot of stress.

6

For my understanding ,please explain how profit of 60k was arrived and on which day.? and how you could not
materialize it?

7

I did not mention about profit/loss. Not everything in the market is about money.
As you said, It did make you stressed , so it taught you the hard way.
PnL does not matter here. This is what I said.

9

Couldnt agree more with you.

10

Had sold the CE options (short):
17500CE at 650, 18500CE at 600
Exited at 17500CE at 43 and 18500CE at 50
One lot was 50

So 50 x (650-43) + 50 x (600-50) = 57850 Profit

Issue was even though BOSCH was trading at 17000 the option price wasnt coming down below 400 (17500CE). Booking at that would have resulted in letting go a lot of profit.