Option Expiry Brokerage

hi,

I shorted a nifty put option, nifty rallied, now the put option is nearing zero.

Is it mandatory to buy it back and incur brokerage?

or, can I leave it to expire itself, thus saving the brokerage?

Please give your suggestions

Bala

^ I guess you need to cover it, if not you need to pay more STT which will beat your brokerage and broker will charge you the brokerage which you think that you could save by leaving it to expire. But they will charge at the time expiry. I am not an option trader. So better wait for an option trader to confirm this...

Bala, All OTM options, on the day of expiry are thrown in the dust bin. There is no settlement of OTM options. Only ITM options gets settled and hence there will be brokerage, stt etc.

So you have to see, whether there is chance that PUTs might come ITM by expiry. If that is the case, then book profit now.

Another point is, those puts might be worth peanuts now (say 2/3 rs). So in remaining 5 days, u will gain only 3 rs .. But if you can squareoff the position (and pay brokerage of say 3 points), you will release the margin money. And with this released money you can take new position giving you more the points then what u are saving in brokerage.

Bottomline, don't be penny wise, pound foolish trader.. Look at bigger picture.

Happy Trading

Thanks AW10 for the reply. the put is OTM by 300 points, I closed it today
- Bala

AW10,

He SHORTED put option and might be in profit now, since you mentioned no settlement of OTM options, what will be his position if he does not close the position before expiry and it went to OTM at expiry?

Is it mandatory to cover the shorted put option at some stage like rs.2/3 or even at 5 paise at expiry?

Hope you got, what I am asking...

OTM options expire worthless.. There is no settlement of that.
So if his put was 300 points away, then most likely it will expire worthless..
It is not mandatory to close this position. But for saving the brokerage of 1/2 points, one should not ignore the next opporunity.

Even if it fetches 50 paise today.. and u pay brokerage of 100 rs on 1 contract.
i.e. net cost to you is (0.5*50 - 100) = 75 rs.. i.e 1.5 nifty points.

My point was not to save this 75 rs..i.e. 1.5 points.. but more about next opportuinty.
If he uses the same margin and shorts July Put / Call. then in next 3 days, time decay on july call will be lot more then 75 rs or 1.5 point..

As a option seller, we focus on the juice (i.e. time value) in the option. Now when 1 drop of juice (50 paise) is left in the fruit, will u spend time squeezing it further or look at the next fruit ?

Hope u see my points
Happy Trading

you cant have OTM option trading at 300...

He does not mean this..........300 points away..not trading @ 300.