What is Square off & How it really works?

st_7

New Member
#1
I'm quite new to trading so I've few doubts about square off option in trading b'cause of my recent experience in exercising it.

I've bought call option(CE) of Aloktext Oct 2012 at a strike price 17.50 in the first week of October 2012, after few days seeing the stock going down I've decided to exercise 'Square off' option from my IIFL terminal, at the time when I exercised(used) 'Square off' option the price of that option(Aloktext CE 17.50 Oct option) was Rs.0.10, as far my little knowledge I should get the Rs. 0.10*10000(lot size)=Rs.1000. But I didn't get it. Note, after I used square off at Rs.0.10 the price went down to Rs.0.05 per lot for the strike price of 17.50, and it stayed at that price till the expiry(yesterday).

So my question is if someone opted for 'Square off' at a particular price of the option, in my case Rs.0.10, should the person gets the amount irrespective of the option being sold or not at that price. Or is it just like regular selling of the option lot, if it is sold it's sold or if it is not it's not(we still hold those lots).

Can somebody clarify me, sorry for posting long post(wanted to be more clear).
 

praveen98

Well-Known Member
#2
I'm quite new to trading so I've few doubts about square off option in trading b'cause of my recent experience in exercising it.

I've bought call option(CE) of Aloktext Oct 2012 at a strike price 17.50 in the first week of October 2012, after few days seeing the stock going down I've decided to exercise 'Square off' option from my IIFL terminal, at the time when I exercised(used) 'Square off' option the price of that option(Aloktext CE 17.50 Oct option) was Rs.0.10, as far my little knowledge I should get the Rs. 0.10*10000(lot size)=Rs.1000. But I didn't get it. Note, after I used square off at Rs.0.10 the price went down to Rs.0.05 per lot for the strike price of 17.50, and it stayed at that price till the expiry(yesterday).

So my question is if someone opted for 'Square off' at a particular price of the option, in my case Rs.0.10, should the person gets the amount irrespective of the option being sold or not at that price. Or is it just like regular selling of the option lot, if it is sold it's sold or if it is not it's not(we still hold those lots).

Can somebody clarify me, sorry for posting long post(wanted to be more clear).
hi,
is it just like regular selling of the option lot, if it is sold it's sold or if it is not it's not(we still hold those lots)....This part is right..
All the Best,
praveen
 

newtrader101

Well-Known Member
#3
In square off, if you select market, it will be definitely closed off at market price, even though you will lose some money. If you chose limit, you can put in your price, but there is no guarantee it will be closed.
 
#4
Squaring off is a trading style used by investors/traders mostly in day trading, in which a trader buys or sells a particular quantity of an asset (mostly stocks) and later in the day reverses the transaction, in the hope of earning a profit (price difference net of broker charges and tax).

For Eg:
Person A buys 100 shares of Reliance from the BSE Sensex through a broker for a price or Rs 10 per share. Later in the day, Person A sells all the shares for Rs 12 per share and by paying broker charges of Rs 10. The net profit A earns is Rs (200-10)=Rs 190.

Squaring Off is a strategy used by experienced traders to reap profits from the trade.
 

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