Option Selling Doubt

Hi,

If I sold a contract say NIFTY CE 8500, will I be able come out of this position (square off) before the date of expiry? (I meant selling option not buying put option)

Thanks
Learner

Yes, any option can be sold/bought any time at Market price. A Shorted (as is your case) option can be reversed by buying the same option from market. You need not wait till expiry to square off the position. You position may end in profit or loss depends on the Nifty level.

rh6996,

When I sell, I would have received some premium. When squaring off before expiry what happens to the premium?

Book will teach you that premium will be received when you are shorting.
Thats not wrong, but it is a way of explanation.

When you buy .........you have to sell it..........the difference is your profit/loss

When you short sell ..you have to buy it back..the difference is your profit/loss

Dont get confused in book. Leave it and see the real market..you will understand it easily.

Mohan Sir
Still it is not clear whether i will retain my premium with profit/loss whatever i get while squaring off my position.
Will you pl. explain us by giving some example?
Thanks

Lets take example that you sold 8000ce at 100 rs.
So the premium is 100rs.

1) If you buy back the call before expiry: Difference between your shorting price and buying price will be profit/loss. That is if you buy back the call at 30rs then your profit is 70 rs ( 100-30). And if you buy back at 170 rs then it will be loss of 70 rs ( 100-170 ).

2) If you dint buy back the call before expiry: Difference between your selling price and settlement price of 8000ce will be your profit/loss.

In any case at end what you get is difference between the buy and sell prices.

Premium received in shorting is not profit. It is simply selling price.

mohan.sic

I want to know what happens if a call buyer doesnot sell out his call before expiry, or a call seller doesnot buy back his call before expiry? The brokers said we will be penalized if u don't close our position before expiry. Is that true?

My 2nd doubt is can I sell calls and make money? I know the markets and have understood the movements.. Can I sell call at high and buy back at low, thereby making the difference as profit? Won't there be any liquidity issues in nifty options?

Mohan Sir,

Can u tell me what will happen if I sell a call and not buy it before expiry? Brokers say I will be penalized. What happens at expiry?

I request you to go through options basics.

Regarding the broker penalty: I dont think so. No such penalty. But you will have to pay higher stt if you position expires ITM. Stt will be calculated on turnover value instead on premium value. Before understanding this please go through basics.