Hi,
I have been trying to learn about options. Below are certain things I learned, could you please clarify if they are correct ?
1} ITM Option exercise:
I have read in many places, that in India, options are settled in Cash. I understood that as follows:
Suppose: (BUY THE OPTION)
- I buy 1 lot of NIFTY put (which is @ 8000) for Strike price 7900 at premium 80 rupees (2000 total)
- On the day of Exp, NIFTY index is 7700, then this put option is in the money by 200.
- The intrinsic value of this put is now 200 per share or 5000 total. So I get a 2000 deposited in my account (5000 profit minus 2000 premium) and this is the settlement.
Am I right about this ? ( Of course we have all charges like brokerage and STT etc)
Suppose: (WRITE THE OPTION)
- I WRITE 1 lot of NIFTY (which is @ 8000) put for Strike price 7900 at premium 80 rupees (2000 total premium received)
- On the day of Exp, NIFTY index is 7700, then this put option is in the money by 200.
- The intrinsic value of this put is now 200 per share or 5000 total. So I get am charged 3000 in my account (5000 profit minus 2000 premium) and this is the settlement.
Am I right about this ?
2} When I write option, they are always settled in cash - correct? Does this mean I never will have to deliver the shares? In other words, from the above write option example, The max I will have to pay in case of the option I wrote is in the money, is the intrinsic value of the option minus the premium I received correct ?
Thank you
I have been trying to learn about options. Below are certain things I learned, could you please clarify if they are correct ?
1} ITM Option exercise:
I have read in many places, that in India, options are settled in Cash. I understood that as follows:
Suppose: (BUY THE OPTION)
- I buy 1 lot of NIFTY put (which is @ 8000) for Strike price 7900 at premium 80 rupees (2000 total)
- On the day of Exp, NIFTY index is 7700, then this put option is in the money by 200.
- The intrinsic value of this put is now 200 per share or 5000 total. So I get a 2000 deposited in my account (5000 profit minus 2000 premium) and this is the settlement.
Am I right about this ? ( Of course we have all charges like brokerage and STT etc)
Suppose: (WRITE THE OPTION)
- I WRITE 1 lot of NIFTY (which is @ 8000) put for Strike price 7900 at premium 80 rupees (2000 total premium received)
- On the day of Exp, NIFTY index is 7700, then this put option is in the money by 200.
- The intrinsic value of this put is now 200 per share or 5000 total. So I get am charged 3000 in my account (5000 profit minus 2000 premium) and this is the settlement.
Am I right about this ?
2} When I write option, they are always settled in cash - correct? Does this mean I never will have to deliver the shares? In other words, from the above write option example, The max I will have to pay in case of the option I wrote is in the money, is the intrinsic value of the option minus the premium I received correct ?
Thank you
