How to settle Options?

[sanjugalande]

Some newbie questions
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1. Who pays the difference on exercise of a call ???????

2. Is there anything to lose after selling a CALL OR PUT ?????

3. What happens to lots , strike price , call price etc.on allotment of bonus shares ????????

some ans from newbiewwwww
1. option writer pays diff ( thats why selling option is very risky as loss is unlimited and profit limited to primium)

2. as said above
3. good que. i also tring to find out ans of same

 

[daitya]

Hi..
I have one question..
If I do not square off or exercise the option..What will happen..?
As many tipster says that maximum loss is premium..(eg. powergrid 170 call 31 JAN..premium 0.30 so the max loss is 1925*.30 = 577..)
Is that true..
Suppose I buy that call and nobody is willing to buy from me and I dont want to exercise / square off..than what will happened?
Thanks

 

[joethim]

If you dont exercise or square off, your amount (premium*lot quantity ) will be lost and the call or option becomes useless

 

[rajsingh]

Hi..
I have one question..
If I do not square off or exercise the option..What will happen..?
As many tipster says that maximum loss is premium..(eg. powergrid 170 call 31 JAN..premium 0.30 so the max loss is 1925*.30 = 577..)
Is that true..
Suppose I buy that call and nobody is willing to buy from me and I dont want to exercise / square off..than what will happened?
Thanks

If the option is in the money it will be automatically exercised by the exchange on expiry. Cheers

 

[dr_tejas_shah]

Sorry, being a newbie asking a simple questions.

1. On Exericising or squaring off the option, does both premium and CMP at the time of ending the option contribute to profit or not?

Suppose, premium is higher than the premium paid at the time of Call option and CMP is also higher at the time of ending the option, does the profit add up (CMP+Premium at the time of exercising or squaring off the option)?

I am sure I am missing something to understand this fully.

2. At the time of taking Call/Put option, is it just premium that needs to be paid to broker? In that case, the maximum loss an trader can incur is the premium only.

Does the trader need to have good amount of margin money like in futures in the account before taking up call/put option?

 

[rajsingh]

Hello D-T-S,

Square involves only the premium. You simply keep the diff. between buy and sell prices.

For exercise look here
Product Settlement Settlement Price
Futures Contracts on Index or Individual Security Daily Settlement Closing price of the futures contracts on the trading day. (The closing price is the last half hour weighted average price of the contract).
Un-expired illiquid futures contracts Daily Settlement Theoretical Price computed as per formula F=S * ert
Futures Contracts on Index or Individual Securities Final Settlement Closing price of the relevant underlying index / security in the Capital Market segment of NSE, on the last trading day of the futures contracts.
(The closing price of the underlying index / security is its last half an hour weighted average value / price in the Capital Market segment of NSE).
Options Contracts on Individual Securities Interim Exercise Settlement Closing price of such underlying security on the day of exercise of the options contract.
(The closing price of the underlying security is its last half an hour weighted average price in the Capital Market Segment of NSE).
Options Contracts on Index and Individual Securities Final Exercise Settlement Closing price of such underlying security (or index) on the last trading day of the options contract.
(The closing price of the underlying security (or index) is its last half an hour weighted average price in the Capital Market Segment of NSE).

You are right about point 2. u don't need margin to buy options.

 

[dr_tejas_shah]

Hello D-T-S,

Square involves only the premium. You simply keep the diff. between buy and sell prices.

For exercise look here
Product Settlement Settlement Price
Futures Contracts on Index or Individual Security Daily Settlement Closing price of the futures contracts on the trading day. (The closing price is the last half hour weighted average price of the contract).
Un-expired illiquid futures contracts Daily Settlement Theoretical Price computed as per formula F=S * ert
Futures Contracts on Index or Individual Securities Final Settlement Closing price of the relevant underlying index / security in the Capital Market segment of NSE, on the last trading day of the futures contracts.
(The closing price of the underlying index / security is its last half an hour weighted average value / price in the Capital Market segment of NSE).
Options Contracts on Individual Securities Interim Exercise Settlement Closing price of such underlying security on the day of exercise of the options contract.
(The closing price of the underlying security is its last half an hour weighted average price in the Capital Market Segment of NSE).
Options Contracts on Index and Individual Securities Final Exercise Settlement Closing price of such underlying security (or index) on the last trading day of the options contract.
(The closing price of the underlying security (or index) is its last half an hour weighted average price in the Capital Market Segment of NSE).

You are right about point 2. u don't need margin to buy options.

Thanks Rajsingh for your reply.

From what you said, I make out that - settlement price is weighted average price in Capital market in last half an hour of trading.

So, even if you exercise/square off your option at any time during trading hours, it gets executed only after the settlement price is derived at the end of the trading day. Is that right?

My second query:

1. In buy option, on squaring off, the profit will be = (Difference in premium)*Lot size* No. of lots

CMP is current market price

2. In Buy option, on exercising the option, the profit will be = (CMP - Strike price)*Lot size* No. of lots.

Any idea - which one of the two - exercising or squaring is more profitable?

Have I got my mathematics right?

 

[rajsingh]

Square off is at price (premium) executed. Exercise is at the settlement price.

Square off is normally always more profitable. CMP of underlying does not figure in square off at all.

 

[cute_sonali]

hello all...

plz help me with my query... i had bought nifty call option... is it necessary to square it off? or can i not excersise it? i mean if i square it off then i have to pay brokerage... and any way im in loss and it is trading at Re 1/- . so wht should i do... plz reply... i am using sharekhan broker
thanks

 

[dr_tejas_shah]

Dear All,

Where do we find details about premium for various strike levels for option on any stock?

Is it on NSE website?

Does premium fluctuate like share prices intraday?