If we sell a Put option & dont get a seller to buy what is the situation

ssrinivasa · #11 14th June 2008, 01:01 AM

it mean Sell XYZ CALL and Buy XYZ Stock at the time of expiration date.???????d

V FROM TCR · #12 14th June 2008, 12:12 PM

oh no!
whenever you entering into option taking opposite to minimise your risk.
ex.suppose you sold XYZ call then you can buy put/sell fut etc

AW10 · #13 16th June 2008, 01:23 AM

Quote:

Originally Posted by ssrinivasa

it mean Sell XYZ CALL and Buy XYZ Stock at the time of expiration date.???????d

Hi ssrinivasa,

Buy XYZ Stock - Sell XYZ Call combination is referred as Covered call strategy. I suggest you spend time
a) reading and understanding the strategy
b) Understand the scenario in which this strategy is used,
c) what are risk and rewards of the strategy.

Both the legs of strategy are to be entered at the same time (theoratically), not at the time of expiry. Nobody stops you from breaking this rule if you decide to hedge the position few days later.. but know it well that you are carrying the risk for these 2 days.

Hope this helps.
Happy Trading.

AW10 · #14 16th June 2008, 01:35 AM

Quote:

Originally Posted by V FROM TCR

oh no!
whenever you entering into option taking opposite to minimise your risk.
ex.suppose you sold XYZ call then you can buy put/sell fut etc

Hi V from TCR,
I am sorry to disagree with your example on hedging the SOLD option by buying PUT or selling Future. Following is the reason behind it -
1) When you BUY a CALL, you want market to go up, so when you SELL the CALL, you want market to go down.
2) When you BUY a PUT, you want market to go down
3) When you SELL future, you want market to go down.

Hedging is the situation when one of the leg is benefited by market going up, and other leg is benefitted when mkt is going down.
In yr example, (sell call, buy put, sell future), none of them is going to benefit if mrkt is going up. So you are not hedging here.
All 3 position will benefit only when mkt is going down. That is Leveraging, not hedging.

To hedge a Sell Call position, one needs to take next position which will benefit from the market going up (i.e. buy call, buy stock, buy future etc). There are more advance options as well but Let me not confuse the readers of this thread.

Hope it is clear. Any comment?

Happy Trading

V FROM TCR · #15 16th June 2008, 06:31 PM

Thanks AW10.
This is an example of this great forum.Any one 's veiw wrong there are somany people who try to solve the mistake.
Yes I mistaken.Actualy I also tryed to say the same.

Thanks very much

Smart_trade · #16 16th June 2008, 07:35 PM

Quote:

Originally Posted by V FROM TCR

oh no!
whenever you entering into option taking opposite to minimise your risk.
ex.suppose you sold XYZ call then you can buy put/sell fut etc

you can minimise yr risk by 1) Buying in Future or better still 2) Buy a higher strike price call ( This is also called a Vertical Spread )

Happy trading !!!!!

chakravu · #17 24th June 2008, 02:51 PM

If it is in the money just let it expire. You retain the premium.
If it out of the money protect yourself by buying an option to offset the loss the may eventually result at expiry. In normal cases you retain the premium if it is not exercised. But as the market is hungry for money you can get severely penalised for keeping and open sell position at expiry. The NSE exchange expiring positions will be squared off without contract notes!!! Really these squared off traded positions have no trade details attached neither a contract note. So you will be in trouble.

AW10 · #18 25th June 2008, 03:05 AM

Quote:

Originally Posted by chakravu

If it is in the money just let it expire. You retain the premium.
If it out of the money protect yourself by buying an option to offset the loss the may eventually result at expiry. In normal cases you retain the premium if it is not exercised. But as the market is hungry for money you can get severely penalised for keeping and open sell position at expiry. The NSE exchange expiring positions will be squared off without contract notes!!! Really these squared off traded positions have no trade details attached neither a contract note. So you will be in trouble.

"If it is in the money just let it expire. You retain the premium.".
As I understand that ITM options have value at expiry and seller has to pay this value to buyer. OTM options have no value hence seller retains the premium and buyer books the loss.
This is opposite of what you are saying, Chakravu.
Are you sure about what u are sayint ? Quite possible, we both are mentioning the same stuff but I am not able to understand you.

Plz give an example ?

Happy Trading.

ARMHM · #19 25th June 2008, 03:45 AM

Quote:

Originally Posted by AW10

"If it is in the money just let it expire. You retain the premium.".
As I understand that ITM options have value at expiry and seller has to pay this value to buyer. OTM options have no value hence seller retains the premium and buyer books the loss.
This is opposite of what you are saying, Chakravu.
Are you sure about what u are sayint ? Quite possible, we both are mentioning the same stuff but I am not able to understand you.

Plz give an example ?

Happy Trading.

HI AW10
Here is the simple example. I sold a Reliance put option strike price 2350 for premium of 85 rupees on xyz date. Reliance was trading at 2425 (spot). My view was it wiould not go below 2350 till expiry. Today I am in trouble because no seller is available. I am helpless because there is no way I can buy back that option. My "enemy" the option buyer is enjoying this situation because he can exercise the option at any time because it is deep in the money, and chances are that it will be against me because exchange selects the writer of the put randomly. Even if no one exercises till expiry it will be exercised by the exchange. Suppose on the day of the expiry reliance closes at 2000 so the difference 2350-2000= 350*75 i.e. 26250 will be deducted from my margin deposit. Wheras I received by way of premium only 6375. This is without factoring in brokerage and other charges.
Hope you understand now.

AW10 · #20 26th June 2008, 01:15 AM

Quote:

Originally Posted by ARMHM

HI AW10
Here is the simple example. I sold a Reliance put option strike price 2350 for premium of 85 rupees on xyz date. Reliance was trading at 2425 (spot). My view was it wiould not go below 2350 till expiry. Today I am in trouble because no seller is available. I am helpless because there is no way I can buy back that option. My "enemy" the option buyer is enjoying this situation because he can exercise the option at any time because it is deep in the money, and chances are that it will be against me because exchange selects the writer of the put randomly. Even if no one exercises till expiry it will be exercised by the exchange. Suppose on the day of the expiry reliance closes at 2000 so the difference 2350-2000= 350*75 i.e. 26250 will be deducted from my margin deposit. Wheras I received by way of premium only 6375. This is without factoring in brokerage and other charges.
Hope you understand now.

Thanks ARMHM for explanation.
I am 1000% in synch with you. RIL 2350 Put option is ITM when RIL spot price is 2000.
This ITM option is excercised by exchange on expiry and whatever is the value, the money is taken from Option seller.
This is not what was suggested by Chakravu. ("If it is in the money just let it expire. You retain the premium.").
As a option seller, we can't let the ITM option get expired. Option buyer has this privilage but not the seller. As a seller we got to manage / hedge it so that risk at expiry is managed.

Happy Trading.