difference between exercise and square off?

[new2sm]

ya but the closing was at similar price.

 

[loosingstreak]

It can happen on rare occassions due to lack of liquidity, and closer to expiry.

 

[nareshch]

ya I mean check this out. I had PowerGrid 105 Strike Price @9.5 premium. At expiry/peak Powergrid stock price was 138-140. and premium was 40 so profits if I had

squared off (40-9.5)*3850(lot size) = 1,17,425

exercise = (140-105)*3850 = 1,34,750

so I feel that exercise might have been better then.

what say?

Your calculations are a bit wrong . For excercise , the calculation of profit will be (140-105-9.5)*3850 . Anyway , it doesnt matter much if you excercise or square off on the lastday of expiry ( unless you sq.off it at high price and price drops later in noon ) . It definately matters , in all other days as options carry some premium . One more important thing is , when the call is too much in the money , the volumes will dry up and sq.off those will become difficult .

Example : i bought neyveli 115 call at 7Rs . On the day of expiry neyveli went to 135 but there were no buyers for the call . I excercised the option and got the closing price at 129.95 .. 5rs is huge differance and thats the problem with illiquid options . ( I did short neyveli fut at high so that my overall profit will be same , but we may not margin to do that all the time . better avoid illiquid options or if you did enter try to book as soon as possible )

Naresh

 

[mohantysatya]

ya I mean check this out. I had PowerGrid 105 Strike Price @9.5 premium. At expiry/peak Powergrid stock price was 138-140. and premium was 40 so profits if I had

squared off (40-9.5)*3850(lot size) = 1,17,425
exercise = (140-105)*3850 = 1,34,750

so I feel that exercise might have been better then.

what say?

Hi,

in exercise , however your profit would be =(140-105)*3850 - cost of position ie. 9.5 * 3850

So see , which is benefitial.

 

[RAJESH71@PKD]

ya I mean check this out. I had PowerGrid 105 Strike Price @9.5 premium. At expiry/peak Powergrid stock price was 138-140. and premium was 40 so profits if I had

squared off (40-9.5)*3850(lot size) = 1,17,425
exercise = (140-105)*3850 = 1,34,750

so I feel that exercise might have been better then.

what say?

But you have to deduct the premium you've paid ie. 9.5rs from 1,34,750.In that case your profit will be 1,34,750-(3850*9.5)=98175 which is less than 1,17,425. Pl tell me whether I'm right or not.

 

[SriVijay]

:QUOTE=RAJESH71@PKD;186939]But you have to deduct the premium you've paid ie. 9.5rs from 1,34,750.In that case your profit will be 1,34,750-(3850*9.5)=98175 which is less than 1,17,425. Pl tell me whether I'm right or not.[/QUOTE]

Also there is higher brokerage in case of excercise .....the whole value of option i taken for brokerage calculation............where in square off....only premium amount taken for brokerage calculation

It is right na....

 

[rh6996]

Your calculations are a bit wrong . For excercise , the calculation of profit will be (140-105-9.5)*3850 . Anyway , it doesnt matter much if you excercise or square off on the lastday of expiry ( unless you sq.off it at high price and price drops later in noon ) . It definately matters , in all other days as options carry some premium . One more important thing is , when the call is too much in the money , the volumes will dry up and sq.off those will become difficult .

Example : i bought neyveli 115 call at 7Rs . On the day of expiry neyveli went to 135 but there were no buyers for the call . I excercised the option and got the closing price at 129.95 .. 5rs is huge differance and thats the problem with illiquid options . ( I did short neyveli fut at high so that my overall profit will be same , but we may not margin to do that all the time . better avoid illiquid options or if you did enter try to book as soon as possible )

Naresh

Hello,
If I neither Square off and Nor Exercise and allow my call to Expire in the money, I get my profit also BUT "Do I save on Brokerage" ?????

 

[stockBond]

ya I mean check this out. I had PowerGrid 105 Strike Price @9.5 premium. At expiry/peak Powergrid stock price was 138-140. and premium was 40 so profits if I had

squared off (40-9.5)*3850(lot size) = 1,17,425
exercise = (140-105)*3850 = 1,34,750

so I feel that exercise might have been better then.

what say?

But u would have foregone your premium of 9.5 as well if you exercised.

So it is (140-105-9.5)*3850=98175 if u exercised