Sir i have a question …say i wrote an call option and have the premium of say 6000 in my account on say 21 dec,(expiry is on 29 dec) than suppose things doesn’t go my way and market starts falling and the written call option is avalable (26 dec) at rs 3000 …then can i exit my position on 26th dec …before expiry…taking that 3000 rs profit.
Seller of an options can exit his position(Sell call Option) any time before expiry is possible ?
Say you write a call option at 50 with lot size 100. You receive a premium of 5000 when you take this position. Now say the call option price falls to 25, you can buy it back at 25. You make a 25 rupee premium profit.
So out of the 5000 premium you received while writing the option, 2500 is your profit and the other 2500 premium is give to the seller who you bought it from while squaring it off.
As long as there are buyers and sellers, you can trade options on any day, it doesn’t matter whether you are taking an entry position or exiting a position you already have. There is no such restriction that the seller of an option has to wait till expiry. He can square off his written option anytime before that as well.
If you have written a call option & when markets falls then things are going in your favour only.
If the underlying is falling then you are benefited & things are going in your favour only.
Had it been if markets/underlying was going up then it would be a case where things are not going in your favour.
Rest , regarding exiting the position, that has already been answered before my reply.
Yes u can square off your position anytime before expiry by buying the contract of same strike price, same expiry. But mind you, if u have written a call then you need to buy back the same CALL only to square off. Don’t get confused that if u have written a call then buying a PUT will square off your position. No it wont !!
That will create one more open position.
Tq @Srinivas
I have few more queries regarding options.
Call Option(Lot-100, Expiry-30th Nov)
----->buy<----------------------------------------------------->sell<----- @10-------------------------------------------------------------@10
premium paid=1000 ----------------------------- premium received=1000
Now------------------------------------------------------------Now
square off(sell) @15------------------------------- square off(buy) @5
receive premium=1500-----------------------------he pay premium=500
profit=500(1500-1000)--------------------------------- his profit=500
(1).is it right or wrong?
(2).His(1st buyer) involvement closed here itself or he
need to do anything as seller(buyer who squared off his postion)
to buyer(2nd buyer) if the buyer hold his position until expiry?
(3).if the buyer(who paid premium as 1000) wait until expiry if he made a profit from whom he get the money?(the seller who sold option to him already exit his position)
Let
TCS 2500 CE
Spot price-2700
If buyer wait unti expiry(until auto square off on 30th).
On 30th few minutes before market close LTP@25.
(4).he will get 100*25=Rs2500 or something else(other payment calculation)?
(5).In options, at any point of time the no.of Buyers= no.of Sellers or not?
(6).How settlement is done between buyers and sellers, if at the time of expiry only 2 buyers and 2 sellers available ?
Let
TCS 2500 CE
Spot price=2489
(7).On expiry day at around 9:30am what would be the possible premium?(0.3 or 0.1 or may be greater than these values or something else).
Plz give answers as per question numbers as i mentioned.
(2) Once the buyer exited his position by selling it off, his involvement from the position is over.
(3) If the buyer waited until expiry and the premium at expiry is higher that what the buyer had paid, then he will make a profit. This profit will be given by the seller (so obviously the seller has made a loss in this case).
(4) I am not sure if I understood this correctly, but let me tell you this:
If TCS spot price is 2700 at expiry and you had bought 2500CE then your Call option has expired 200 points in-the-money (LTP will surely not be 25 for liquid scripts like TCS ). Assuming you had bought the 2500CE at a premium of 30 points some days ago, your net profit without taking into consideration taxes/brokerage/other charges will be 100x(200-30) = 17000 where lot size is 100.
(5) If you are reffering to Open Interest, that is, the number of option contracts that are currently open then yes. This is because for any Option trade to take place, one buyer needs one seller to take an opposite view to enter into the trade. So for every buyer who bought there is a seller who sold, and vice-versa.
But if you are reffering to no. of buyers and sellers who are yet to buy/sell but are willing to do so(bidders), then that ratio of buyers and sellers may not be equal. You may notice this in the order book that sometimes no. of buyer are more than sellers and vice-versa.
(6) Settlement upon expiry will be done among buyers and sellers whose positions are already open and that will always be equal in number as mentioned in point (5).
(7) Well, at that time it’s slightly out-of-money but some time value would be left in the premium. It’s impossible to pin point exact value as there could be many factors prevailing at that moment in time. Theoretically, as per Black-Scholes model the premium would be around 6 assuming IV of 20%.
Hi @Arun9999 I would suggest you to square of manually to avoid the exercised STT. the STT will be applied to the turnover.
if you do it manually STT will be on premium*lotsize.
If you leave an ITM option position open at 3.30pm on expiry day, then this implies that you have exercised the option and the exchange will settle it for you. There is no such thing as auto square off by the exchange. They will settle your option based on the intrinsic value of the option.
STT in options trades is applicable only on sell trades. So if you have an ITM buy option position and you allow it to be exercised, then STT will be applicable while exercising. And the STT for exercised options is 0.125% on the turnover, where turnover is calculated as (strike price + premium) * qty. Whereas STT for normal option sell trades is only 0.05% of premium * qty. So STT drastically increases at expiry.
But there are no more STT traps. If your option position results in an STT higher than the intrinsic value, then your option position will not be exercised and you only lose your premium amount. Like Malsa said, if your option is ITM before expiry, then you should square it off by yourself at a favourable price to eliminate the STT eating into your profits.
You mentioned “But there are no more STT traps”. Can you elaborate more on this?
I am aware of what STT traps are, but how are there no more STT traps?
Is this something new that I am not aware of?
Is this automatic or do I need to do something to avoid such trap?
I dont think the seller would be getting a profit of 500. When he writes an option he gets premium of Rs. 1000 and during square off he would pay 1500 (lossof Rs. 500).
How did you arrive that he would be gaining Rs. 500? Pls clarify
On 1st Jun 2021, If I bought a NIFTY futures at 15629.3 and sold a call option CE at 15700 for a premium of 198.05 and received a premium from buyers around Rs.14853.
My question is suppose if I exit both the futures and premium on the same day say 1st Jun 2021. And Nifty futures closes at 15623.40 and the premium for selling the call option at 15700 is at 184.00.
Will get the whole premium first for the contract month 24th Jun 2021, and if so will I get the premium amount of 184 75 or the one when I sold the call option 19875?
Is it possible that we will get the whole premium if I enter and exit with the covered call Buy Nifty futures at 15629 and Sell Nifty CE at 15700 on the same day?
You’ll be buying back the option at Rs. 184 after selling it for 198. The difference between the price which you shorted at and the price which you square-off (buy) the option at will be your P&L. In the above case, you’ll be making profit of Rs. 14 * Lot Size.
After selling the option, you get to keep the entire premium received only if option expires OTM. In case you’re squaring-off your position before expiry, the difference between your selling and buying price will be your P&L.
I have one more question, I’m selling a Put option of Nifty strike price of 16200 at 981 with a weekly expiry say 3-Jun-21. And just before the expiry date say 2-Jun-21 I’m buying the same strike price of 16200 at 135.64.
Will I get a profit of (981-135.64) 845.36 rupees or a loss of 845.36 rupees?
For short position, you make profit when price of the security decreases. As you shorted this option at 981 and square-off the position at 135.64, the difference (845.36 * Lot Size) will be your profit.
). Assuming you had bought the 2500CE at a premium of 30 points some days ago, your net profit without taking into consideration taxes/brokerage/other charges will be 100x(200-30) = 17000 where lot size is 100.
Great pointers.
