i am aware an out the money option cannot be exercised .
what happens :-
when ITM option is bought , it is still in the money but premium has depreciated … so i select to exercise the option ?
when OTM option is bought , it goes ITM , the premium has appreciated … will i profit more if i square-off or more if i exercise the option ?
All the Futures and Options contracts are settled in cash on a daily basis and at the expiry or exercise of the respective contracts as the case may be.
You cannot exercise an option in the Indian markets
When you exercise ITM options instead of squaring off, you will have to pay very high STT charges (Security Transaction Tax). The STT for selling options is 0.017% on the Premium. But for exercising the options the STT is 0.125% on the CONTRACT VALUE.
Example - Say you sell 1 lot of nifty (75) - strike 7800, with a premium of Rs50 - your STT will be less than Rs1
But if you exercise the same then the STT = (7800*75)*0.125% = 731.25
So never think of exercising option.
i am aware about cash settlement … the question still remains … what kind of cash settlement takes place on option exercise ?
what different kinds of cash are there bro? If money is receivable, you have receive. If money is payable you have to pay.
thank you 