Selling options

#3
I have some questions here.

Suppose i have (1 lot) 8000 shares of NHPC in my demat account (sharekhan).
I put them as margin (i don't have any cash).

#1: In options, which price do i consider for settlement for contract exercise? is it the LTP of the month or the last thursday?

#2: I've sold 1 call of nhpc. the final price at the end of the month at #1 is significantly greater than the strike price of my contract. Remember, i don't have any cash with me. I just have 1 lot of NHPC which i've kept as margin. Now, the contract is getting exercised. So, what happens to my existing stock? Does it get sold automatically?? Or do i have a negative balance in my account? Or call from Sharekhan as to what to do- a sale of the margin stock or a funds transfer from my end to meet the difference?

Basically, how does the transaction happen?

Please answer these 2 questions.

Thanks.
 

Vector

Active Member
#4
Closing price on expiry day is the price of settlement.

You will get a margin call, if u dont meet it your shares will be sold at whatever price your broker chooses,to fulfill your obligation. Better to pay cash.:)
 
#7
Hello friends,

I have had this doubt for sometime now but this thread has made it clear for me. Thank you very much. But it would be great if i can get further clarification.

In case an option buyer exercises the option before the expiry date how do things work ? Or, is that even allowed in India? And if it is allowed, then when and how do i receive the strike price money, assuming i am selling call options? I am sorry for my ignorance about this :( any help is appreciated.
 

umeshmandal

Well-Known Member
#8
Hello friends,

I have had this doubt for sometime now but this thread has made it clear for me. Thank you very much. But it would be great if i can get further clarification.

In case an option buyer exercises the option before the expiry date how do things work ? Or, is that even allowed in India? And if it is allowed, then when and how do i receive the strike price money, assuming i am selling call options? I am sorry for my ignorance about this :( any help is appreciated.
Hi Udit, Options can no longer be Exercised "before" expiry!! All options including Stock options have become European Style Options so the same can be exercised only on the Day of Expiry!! On Exercising on the Expiry day, the differnce is "cash" settled, no deliveries are reuired!
 

Vector

Active Member
#9
NSE has switched to European type options which cannot be exercised before expiry.

But u can square off any time. But why would u want to exercise any way and loose the premium even if options were american .
 

umeshmandal

Well-Known Member
#10
"Whatever price"- should it not be the settlement price? Or will they be auctioned off?
Till date we do not have "delivery settlement of derivatives" All is cash settled. The settlement price on Derivative close is used to arrive at the amount receivable from you. You could have sold a NHPC call even if you had some other stock of required value in your account and used that as Margine. Mostly Brokers do not accept 100% margine in form of Stocks. So the difference of the "Settlement" would be debited from your Cash Margine and in case of shortfall, stock pledged as margine for required amount would be sold at the market rate!!
 

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