Selling options

[pritam1232007]

hi, if someone sell call option and price go out of the money(OTM). let say it goes to zero and underlying stock price is 10 point less than the strike price. how this position will exercised by broker. or how someone close this type of position...

 

[rama_1000]

hi, if someone sell call option and price go out of the money(OTM). let say it goes to zero and underlying stock price is 10 point less than the strike price. how this position will exercised by broker. or how someone close this type of position...

Such options will expire as worthless on the date of expiry. You don't have to do anything. No need even to buy them back since they will automatically expire worthless. You simply pocket the premium that you had got by selling the calls. This amount comes directly in your account on the date of sale and you keep it on expiry day. Nothing further needs to be done.

 

[WhoKnows]

If the written option ends in ITM at the time of expiry does it attract any fine like buying options.

Thanks

 

[rajsingh]

you pay strike price - closing price on expiry day.

 

[rama_1000]

If the written option ends in ITM at the time of expiry does it attract any fine like buying options.

Thanks

The settlement of options is done on cash basis. This means that in the scenario of a written option expiring ITM, you've to pay the difference between the strike price of the option and the settlement price of the underlying security on the expiry date.

 

[WhoKnows]

Thanks for the reply, I just need to know , If we have to pay any STT or any other tax / fine , like in the case of long options when they end in ITM.

 

[pritam1232007]

not sure but...
no fine only brokerage and nse tax..if you didn't close long position on expiry broker will close your position at the closing price..

 

[DanPickUp]

You have a loss when your naked otm or atm goes itm and no government's, in my opinion, are going to tax any of our lost money in option trading. That at least is the case in the market I trade.

Edit after reading rajsingh's post :

Brokerage and exchange fees are some thing I am used to, but I am surprised that any government, and in this case the Indian government, is putting taxes on such trades. I have seen the following article and one point really toke my attention

http://www.caclubindia.com/experts/stt-for-options-exercised-by-exchange-310805.asp

So, thanks Rajsingh, I learned again some thing new about the Indian Market. A hidden small detail, recognized only from the trader which trades directly in that market and not seen from foreigners, like me, who do not trade directly in that market.

 

[rajsingh]

Thanks for the reply, I just need to know , If we have to pay any STT or any other tax / fine , like in the case of long options when they end in ITM.

You have to pay stt on option sale...regardless of profit or loss

Sr.No. Taxable securities transaction New rate from
01.06.2008 Payable by
A B C D
a Sale of an option in securities 0.017 per cent Seller
b Sale of an option in securities, where option is exercised 0.125 per cent Purchaser
c Sale of a futures in securities 0.017 per cent Seller