How is (mandatory) square off done by the exchange on expiry date?

ashwirag · #1 3rd January 2007, 04:56 PM

Hello,

I started trading in Options a few months back. I understood that for any open position not squared off by the individual on the expiry day, the exchange (or is it the broking house?) automatically squares off at the relevant rates.

The question: I had three call positions of different companies which I did not square off. The reason was that the value on the expiry day was much below the value I bought. Common sense told me that in addition to incurring a loss, I would also pay brokerage and other charges, which would increase my net loss. So, I did not square off on the expiry day.

The transaction and contract statements do not indicate of any square off. Does it mean that these positions which I bought, were never sold back? Learned members, please educate me.

Regards,
Ashwirag.

vince · #2 3rd January 2007, 05:42 PM

Hi,

I am assuming that you had purchased the options, and since they were out of the money they would have expired worthless.

Long options are automatically excercised by the exchange only if they are in the money, else you have to square off the transactions if you feel you can salvage something out of them.

Regds

ashwirag · #3 3rd January 2007, 05:50 PM

Let me be more specific: I bought one lot of call option of a company for Rs 4000, which included the brokerage and other charges. This became (-)Rs 200 on the expiry day, including the brokerage charges. So, my loss would have become Rs 4200 if I square off. By not doing so, I would limit my loss to only Rs 4000. I exactly did this.

I am not able to see any transaction/record on this particular call option after the expiry date. Is my logic right in not selling on the expiry day.

vince · #4 3rd January 2007, 06:00 PM

You did the right thing, since you would be loosing more money if you had squared off.

Since your option was obviously out of the money it has expired worthless and there will be no action taken by the exchange and hence no record.

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