Calculation of turnover in case of options
The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
Premium received on sale of options is to be included in turnover.
In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.
What I am looking at is the second one, i.e., “premium received on sale of options is to be included in turnover.”
If I buy a future at 38000 and sell it at 38100, my profit and turnover is 2500. I do 10 trades in a day like this, and my turnover is also 25000.
In options, if I buy one 38000CE at 300 and sell it at 400, my profit is 2500 rs, but my turnover according to the calculation is 10000 (sell value) plus profit of 2500, = 12500. If I do 10 trades like this, my turnover is 125000!!!
Here is the tricky question, just go to the statement 2, “premium received on sale of options is to be included in turnover”. Here, are we receiving any premium? The answer is a big “NO”. Actually, when are we receiving the premium? It is only when we let it expire. Correct me if I am wrong.
Let us take an example here, I am letting expire a 38500CE bought at 90.
Scenario 1: It expired worthless, loss is 90 x 25 = 2250, no premium received since it expired worthless.
Scenario 1: It expired at 200. Here, profit is 110 x 25 = 2750, and premium received is 200 x 25 = 5000. Total turnover is 7750.
When we short,
Scenario 3: Sold 38000CE at 90, expired worthless. Here profit is 90 x 25 = 2250. Premium collected was also 90, so 2250 x 2, turnover is 4500.
I summary, what I think is that the sale value of option is to be included in turnover only when we let it expire. Until and unless we are not collecting any premium, but only profit or loss in intermediate trades, there is no need to add this in turnover. I welcome suggestions and corrections in this matter, as a majority of the traders here do their trades in options.
Have a nice day.