Guys a little help over my confusion please.
I have xyz stock long call option which is out the money on todays expiry, last trade price is very minimal that is 0.05, so i thought to get what ever residual value i am getting, so placed an exit order for the same, now I want to know why there is no buyer for the same?
I mean there is always a buyer for a seller and vice versa right? So why isnt there any1 who might had sold call previously and why isnt the person squaring off his position now by buying it for 0.05 ?
Does it mean that writer is letting its option expire in the money and get the difference in spot and exercise ? and thats why the remaining people arent able to square off its position at the minimal rate also ?
There has to be a buyer and a seller for a transaction to take place. But if they don’t want to transact then they won’t show up. You can use the market depth to see if buyers and sellers are available.
For the person who wrote the option contract and the option is now out of the money, since today is expiry his option will expire highly probably at 0 and he’ll get to keep the entire premium he received while writing the option. He will not square it off at 0.05 because he does not need to.
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Hi @tushjain00
you are right with the views that you mentioned.
I have commented on this earlier. If u wrote an option earlier so its always better not to wait till the last time. Better square off well before expiry because the liquidity will decrease considerably thereafter. Why would fresh buyers enter to waste money by buying OTM at the last moment? Its a rare event where u still find many buyers interested to make fresh positions buying nearly zero premium options.
Now coming to second scenario, if someone bought an option earlier & if the position went in good loss, then majority of those buyers would have already squared off by cutting their losses well before expiry & so u wont find suitable buyers for buying nearly zero premium options.
Also , third case , if some big company bought big no. of options for hedging purpose, then that company may not even bother to exit by selling those contracts if they have gone OTM.
They will simply let them expire worthless because the company bought them for hedging by calculating the overall profits after paying the premium for hedging. Its purpose was to protect their primary positions elsewhere.
Always remember, majority of the OTM expire worthless & are never squared off.
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