It has two root cause
1. Deep ITM doesn't have much buyer/seller i.e. less liquidity (even same happens for nifty deep ITM options, rs.15/20/25 spread).
2. Bought options if remained un-exercised (i.e. not sold) attracts the STT of 0.125% of entire contract value, in your case 380+15.15*1000*.125% = Rs. 494 additional STT if settled by exchange.
Solution:
1. If you think you are satisfied with the profit of Rs. 70 (i.e. you dont exepct it to rise further), then instead of covering/selling it at Rs. 51, you just sell 1 lot future of same expiry @ 450 (current market price), and your profit of Rs. 70 (please deduct your buying price premium and brok and tax) will be locked, all you got to do is just wait till expiry.
2. If scrip goes to 600 (taking such high price just for the sake of clear example), then you will lose Rs. 150 per lot in future, but at same time this loss shall be covered in your Call and its value would be Rs. 220, because (i hope you already know) at the date of expiry future and spot price is converged, and un-excercised optiions are settled at closing price of spot on the expiry.
3. Or if stock Fall to Rs. 300, in that case you are totally protected as your premium will become zero, but your shorting will give you profit even more than option profit (in case stock fall from there to below strike price, otherwise your rs. 70 is locked, no matter what happens in the market).
I hope it should be clear, if any confusion raise the query.
Hello Friends,
I am bewildered by the pricing of options.
This the story of last week.
The underlying stock was ADANIENT.
I bought ADANIENT 380 Call at 15.15. ADANIENT itself was at 373. This was monday.
I sold ADANIENT on thursday when it touched 450. The call was priceed at 51.
Confusion is this, the call should have been priced at (450-380) = 70.
Why is this difference?