I am here not to attract hate comments. I am new into the world of options and it would be wonderful if someone can answer my questions.
I can’t get answers to any of the questions below on google or any forums. Hopefully many can be benefitted reading through the comments and discussions that follow this topic
Would it make sense to square off your position being an intraday options buyer when you can be potentially exposed to greater risk being an options seller?
If you do square-off your position as a buyer then wouldn’t you stay in the market/trade as a seller till 3:15 pm and be exposed to further losses if the trade reverses?
How often does an options buyer square-off his/her positions on intraday?
How would Zerodha square-off all open intraday positions at 3:15 pm. Suppose if i am a seller and losing money at 3:15 pm- would Zerodha find an appropriate buyer at that limit price and/or market price and handover/exchange the contract to him/her?
Suppose you are an options seller when you initiate the trade and if your stop loss hits, then you would just pay the premium at that price and turn into a buyer. Being a buyer now, are you still in the market/trade till 3:15 pm intraday and would you make money if the trade reverses?
Should’t the instrument be highly liquid for all the above to make sense for both the broker and trader?
Hopefully someone can answer all the above questions.
One thing I understood after reading ur doubts is that you are new to the market.
U should understand that once u close your options buying postion, u will not become a seller but the qty in your postion will become zero.
For example, I buy 1 lot nifty 12000ce(1 lot= 75) in the morning at 100 and close my position at 110 at 12:30pm, my position will be closed and I will book profit of 110-100*75=750/-.
After the above, I will not have any qty in my position after 12:30pm since I have closed my position.
Can you kindly explain the dynamics of this transaction? Isn’t closing a contract mean opening an opposite order type?
How can you close an options before expiry? It is a contract and you must abide by its terms until the contract ceases to exist. Just like an agreement you sign with a bank.
What if your stop loss (SL) hits as an options buyer? Isn’t your SL a sell order?
If i am in profit, i can close the contract and the broker will exchange it with another buyer/seller but what if i am in loss?
Thanks for taking time to go through my questions and answer them
Closing a contract does not mean opening a new position.
You are closing your existing position with some one else who is creating a new position.
In india, all futures and options contracts have expiry date which is last thursday of the month after which u cannot carry forward the contract but u can close your contract any time u want i.e. even after 5 secs of opening new position.
If u r in loss, u can carry ur position till expiry if u have enough margin in your account.
Hi Ashish,
Why would anyone hate you for asking questions? We are all a community here of trading enthusiasts.
Ask your questions with no hesitation.
I did not understand your question properly
Once you have squared off your full position, your profit/ loss has been booked. Even if the market crashes, it won’t change what is already realised
This is a very subjective question, it depends on their trading style.
The contract is handed over to the counter party, buying from you and not the exchange. The order gets filled as market order if MIS orders not squared off before 3:25 for options.
Once you have squared off all lots, your profit/ loss becomes fixed. You will neither benefit nor will you loose after that.
Liquidity is generally a requirement to avoid slippages. It is better if it is liquid as a trader. As for broker, it shouldn’t really matter unless the position is in MIS and there is absolutely zero liquidity.
Just a piece of advice from me, it seems that you are new to options. You should probably stay away from it unless you have a thorough knowledge about it.
Think of it this way, you hand over your obligation of the contract to someone willing to take it from you at a price. Just like how you can buy and sell Bonds.
When your stop loss hits as an option buyer, it will be a sell order.
Same thing. The broker will take the loss from your account.
Finally i am understanding the dynamics of transactions.
So even if i am in loss, there wil be thousands who would still want to take the contract off me.
So in conclusion, stop loss sell order is not opening up a new contract but rather handing over your contract to another buyer who has opened a new position.
Asking basic questions will attact a lot of hate comments. I usually don’t like such things.
And yeah- will stay away from options as much as possible.
Thanks for clearing all my doubts. So helpful!
I was under an impression that the stop loss (SL) you keep when you open a fresh position is uaually the opposite order type which will open another fresh position.
But Revanth has cleared all my doubts- he said, the SL is just selling/buying the contract to another party who has created a fresh position.
You mentioned the same and it has erased all the doubts i had with respect to market dynamics.
Question- All Intraday open contracts are squared off bt Zerodha at 3:15 pm. Does this mean the broker will handover the contracts to others who are interested at market prices?
A big call out for me after reading through your comments are that beginners get confused with Stop Loss (SL). With all the theoretical knowledge out there, we usually think its basically opening a new position/contract in the oppossite direction but rather it is buy/sell the same contract to another party who is interested to buy/sell from you at the current price/premium.
