Whether to exercise in the money or square off

Guys. I wanted to ask this following doubt-
I purchased call on bank nifty when it was 25218 @32₹ today was its expiry and i squared it off at 40₹ gaining ₹8 per lot.
But today bank nifty closed around 25446, my query is my option was in the money, how do i exercise it if i dont squre off,
If i had exercise it, would i have got 25446-25400 that is 46₹ per lot? Because by squaring the premium was giving me just ₹8 per lot

Assuming u bought call of 25400 @ 32 rs when bank nifty was at 25218 .

Now if bank nifty expired @ 25446 then your call value would be 25446 - 25400 = 46 rs.

You would have got 6 rs. more but u did right thing I guess. Otherwise you might have ended up paying high STT for a minimal benefit of 6 more rs. and it would rather have costed you significantly in the end hardly leaving any profit and you might have actually ended up paying more taxes & the profits could turn into loss after deducting high STT.

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As you Know that in the money contract are the those where strike price is higher then current market price. when you have purchased this contract may be on yesterday 15/Nov/2017 when its CMP 25218 and 25400 call @ 32 in banknifty movement was bullish so your call option premium also increases .

On today BANKNIFTY made high of 25488/- and close at 25446 here if you want to exercise the call option means, you have right to buy underlying asset at fixed future price , in you case fixed future price was 25400

So the contract that you make is To Buy bank-nifty 1 lot i.e 75 at the price of 25400 for which you have paid a premium amount of 32 initially . To Exercise this contract you need to pay full amount that would 25400*75 = 1905000/-
here point is that if you buy or exercise the contract of banknifty at 25400 (your strike Price ) and sell the bank-nifty at its today or any higher rate suppose at 25488.45(Todays high ) here your profit would

Buying price (25400) - Sell/ Current market price (25488.45) = 88.45 *75 = 6633.75 profit

in this profit your cost that you have paid to writer of the contract (Selller of call option) also would be added that premium of 25400 call 32*75 = 2400
So net profit 6633.75 - 2400 = 4233.75 INR would be net profit

**_here the thing need to be considered is that with the investment of 1905000/- + 2400 the profit you receive is aroung 4233.75 /-

Here premium is compose of two values that is TIME VALUE OF MONEY and INTRINSIC VALUE _**

thus time value of money decrease according to time as the contract are for 1 month expiry so on expiry the time value become Zero hence in the contract that you have sold receive less profit to monimizr the risk in market you can buy or sell the contract according to underlying asset when the premium increase or decrese.

If you take delivery or exercise the contract by paying full amount to seller of contract there may be the probability that the cmp or expected price of underlying goes negative in your case may be on tomorrow the price that reach today high goes negative below to 25400 in this case if you have already exercise the contract then ultimate you will loss.

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Sorry for asking these silly question but I am new and full of hunger to grab the knowledge of stock market.

Can you please explain to me what is bank nifty?

What are 25218 @32₹ means?

You bought 32 stocks at the rate of 25218 or 25218 stocks at the rate of 32.

Thanks In Advance.
-Veera

If i want to exercise why would i pay full amount like you said, theres no physical settlement right, only cash settlement, so only the difference i will get . Isnt it?

The STT becomes higher(increases from 0.05% to 0.125%) when you exercise your buy option(keep options position open for exchange to settle) at expiry.

Now you bought your option at 32 and sold at 40, but the intrinsic value of your option at expiry was 46. If the increased STT is greater than 6 rupees which in this case it is, then it actually ends up eating your profit by allowing your option to exercise.

Bank Nifty is an index just like Nifty. However, Bank Nifty index is comprised of only 12 Banking stocks. Here is the link from NSE website which you can go through- https://www.nseindia.com/content/indices/ind_nifty_bank.pdf
Now what was written by the creator of this topic was in the context of Options of BankNifty index. Options are derivative instruments, and you can learn about them at Zerodha varsity here - https://zerodha.com/varsity/module/option-theory/
If you are new to the stock market then I would suggest that you learn about the beginners concepts first. Once you have mastered the beginners concepts, then go for the intermediate concepts/workings like Technical Analysis, Fundamental analysis. Then as a next step, learn Options. If you do have a mathematical bend of mind, you can directly go to Options bypassing Technical Analysis/Fundamental Analysis as many Options traders use neither to trade Option strategies on the Indexes (My personal experience also corroborates with this, although I did learn TA/FA first, but I don’t use them much while trading Options). If you like investing in your learning path, then learning Fundamental analysis is a must so that you can understand the difference between good quality stocks and bad quality stocks.

There are many learning paths in the stock market. Once you start your journey, you discern what suits you and what doesn’t.

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I would like to correct you or add further to it. You missed an important part.

STT is charged at .125% on the " entire contract " value for the options which are exercised.

Whereas STT is only applicable on " premium value" when options are squared off.

Also STT is charged at .05% in this case which surely is less as compared to .125% as mentioned already.

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