If I sell an il-liquid Call Option ...will there time decay in premium ?
what will happen at expiry if I'm unable to square off due to il-liquidity ?
1. Decay is not enforced by any systematic enforcement. It is due to demand-supply, and Theta is calculated based on market conditions.
In short, when you sell, there has to be someone who buys at your asking rate.
2. After selling, again when it is your turn to buy, based on supply-demand rate consensus, if you get someone to match your bid rate, you'll be able to buy it else it'll go to expiry.
In expiry, if its OTM, it'll expire worthless and you pocket entire premium.
If ITM, based on the settlement price, you'll get a rate. If its higher, your in loss else profit.