In fut What happens to counterparty when you square off your position before expiry?

[cloudTrader]

Re: In fut What happens to counterparty when you square off your position before expi

WoW interesting ! No one know this answer?
AGAIN -
If only A and B is exist in this Option market (suppose), A sell to B and build a contract. In this case Open Interest is 1. What happen if A want to leave the trade anytime before expiry? What would be the case in respect of B?

The situation may be as follows --

a) A is in profit, B is in loss
b) B is in profit, A in loss
c) No one in profit

Can anybody solve my problem?

If we take your Hypothetical situation to be true then there is a scenario by NSE.

If A is the buyer and wants to square off but the other party is not ready then in European Options which our Exchange follows , it will be compulsorily Exercised by the NSE on the Expiry Day of that contract.
The Option will be settled as per the LTP of the Underlying. So if A is the buyer and the Option is ITM and Selling Price [of A] of Option is more than the Buying price as per settlement price at the end, then A will get the profit. B will be required to pay the difference as Loss [margin requirement].

Exact technical requirements and compulsions can be searched for more clarity. I think I will search more on this exact scenario to be more precise.

 

[cachu]

Re: In fut What happens to counterparty when you square off your position before expi

WoW interesting ! No one know this answer?
AGAIN -
If only A and B is exist in this Option market (suppose), A sell to B and build a contract. In this case Open Interest is 1. What happen if A want to leave the trade anytime before expiry? What would be the case in respect of B?

The situation may be as follows --

a) A is in profit, B is in loss
b) B is in profit, A in loss
c) No one in profit

Can anybody solve my problem?

What you mean A wants to leave trading if there are one A and One B exist.
You cant. Once u sell it you have to obey the contact's formalities. A can only leave trade by buying back from B. Now consider the same situation B is facing. And what if B doesnt want to sell?

 

[ram2010]

Re: In fut What happens to counterparty when you square off your position before expi

What you mean A wants to leave trading if there are one A and One B exist.
You cant. Once u sell it you have to obey the contact's formalities. A can only leave trade by buying back from B. Now consider the same situation B is facing. And what if B doesnt want to sell?

question is ,till expiry what will happen?, if a is not ready to square up.

b has to sit idle, and positions will be squared up on expiry by exchange.

 

[cachu]

Re: In fut What happens to counterparty when you square off your position before expi

question is ,till expiry what will happen?, if a is not ready to square up.

b has to sit idle, and positions will be squared up on expiry by exchange.

If there only A and B and the situation like you mention. B has to sit idle

 

[Jinti]

Re: In fut What happens to counterparty when you square off your position before expi

question is ,till expiry what will happen?, if a is not ready to square up.

b has to sit idle, and positions will be squared up on expiry by exchange.

That is the POINT I really want to know...

 

[test123]

Re: In fut What happens to counterparty when you square off your position before expi

if we talking of option here simple as that no but if why..

suppose todays nifty close is 8475

CASE1

now say Jinti sells calls he thinks market will go down .....
test123 buys 1000 call of 8450 CE @ R.s 20

so 20*1000 = 20000 is premium that is debited from my account and transfered to your account that u will get if on expiry if nifty closes below 8450 ...

Call will be 0 i loose money u gain full 20K

CASE 2
Now if nifty goes 8550 my calls value will be R.s100 as u are writer of option
your loss is unlimited ....
i make 100K and u loose same amount.

vice versa goes for put

Hope it clears out.

consider Option as Betting .official betting

As leonid said true The Option will be settled as per the LTP of the Underlying.
at 3:30 NSE compulsory executes it "Exercised by the NSE" and winner gets his profit

 

[Tradewithhunter]

Re: In fut What happens to counterparty when you square off your position before expi

crazy hypothetical question...

However this crazy hypothetical situation will never happen NSE allows F&O trades only for liquid stocks and not penny stocks. Liquid stocks means good companies which are not supposed to go bankrupt overnight and you will always be able to find a buyer or seller even if mkts hit circuits.

Also, this situation in a hypothetical world can happen in cash segment too.

In cash market if you buy a stock and next day you want to sell but there is no buyer next day ...hard luck ...you cant do anything about it until someone is interested in buying. Hypothetically you will end up with that stock for eternity...

Atleast in futures you know it will finally settle on expiry day so maximum hold period is the contract expiry day days and not eternity. :lol:

cheers
SH