I have noticed huge orders trying to sell at 0.05 OTM on expiry day. I am unable to understand the rationale behind this.
If the reason is to buy it back at a lower price, then there is no lower price because 0 being the next lowest price. If the reason is to sell before it becomes ITM to avoid huge STT, then it is not so because it is deep OTM. So why then there are so many orders trying to sell at 0.05?
Can someone please explain why do people sell OTM orders at 0.05?
Becoz Zerodha charges only 20 rs so if i am getting 100 rs by selling at 0.05, even I would sell
Cos if I’m holding 1,00,000 qty that’s going to expire OTM and be worthless I might as well sell it for 0.05 ps, make 5k and drink till I drown all my sorrows
So let me understand this correctly -
If I haven’t bought any qty before but I sell 1800 qty of Nifty 10700 PE (deep OTM) whose LTP is 0.05 at expiry day and at about 3:20 pm, that would mean a premium of 1800 * 0.05 = Rs 90. Minus the brokerage & taxes of Rs 30, does this mean I get to keep the Rs 60? The only reason I can think of why traders mightn’t prefer to do this is that, of course, this would mean the margin gets blocked & gets released only the day after expiry and hence they would not be able to place any new position until then.
I always thought 0.05 was equivalent of 0 in Option trading because selling happens at a higher premium and at expiry the LTPs all come down to 0.05 and not 0.
On a side note, if I have short put a deep OTM at a premium of say Rs 10, should I place a call order at 0.05 on expiry day or let it expire? In the former case, my profit will be [(10 - 0.05) * qty] whereas in the latter case, the profit will be [10 * qty].
No i meant that somebody who has already bought earlier at higher prices, instead of losing all money, they may sell at 0.05 and retrieve atleast small amount
Search for “options STT trap”
Thats only for ITM options, 0.05 ones are OTM
So, to summarize - selling at 0.05 OTM are those who have bought at a value > 0.05 and trying desperately to get something back out of it instead of letting it expire worthless.
Ok gotcha! Thx…
yes,
That was for him to search further.
To go more deep he can now search - Why all buyers whose options are ITM & Sellers whose options are ATM must exit their positions rather than letting their options expire/exercise.
Sensibull videos, articles are good source for these.