hi,
some query on this dilemma - difference between exercise and square off?
I searched thru net and this forum and I did find some queries and answers to them, though the questioners were satisfied, I am still not sure or satisfied with the answers so here I go.
1. What is more profitable(theoretically, practically, by experience, etc) squareoff or exercise?
2. when to go for which?
3. which one gives more profit and in what situation?
4. how is the calculation done? For this I will take an example. Support if I had PowerGrid Call Option with Strike Price 105 @9.5 premium. On the day of expiry, this contract was @33-40 premium and Spot price was 136-140. which one would have been profitable and how would the calculation be?
Square Off
(Premium@sell - Premium@buy)*lot size
Exercise
(SpotPrice@close - Strike Price)*lot size?
(SpotPrice@sell - Strike Price)*lot size?
(SpotPrice@(depending of your answer) - (Strike Price+ Premium))*lot size?
more permutation......?
For simplicity sake please assume ONLY CALL Option and use the above example.
5. Which of them -square off or exercise is more riskier(market falling as expiry nears due to volatility, time decay, etc)
6. how will the settlement be done in both the cases. I know in case of square of the settlement is diff. bet. premium amounts. in case of exercise diff. bet. (Strike & Spot price)*lot size?
Plus in case of exercise it is a lot riskier since the Spot price is EOD price and not CMP right?
I know these are lot of questions but trust me they must have occurred to all people at some point in the process of trading and this forum is full of them time and again so let this be a definitive thread to close them all. then this thread can be made sticky based on how well it is answered.
so shoot.
Regards.
some query on this dilemma - difference between exercise and square off?
I searched thru net and this forum and I did find some queries and answers to them, though the questioners were satisfied, I am still not sure or satisfied with the answers so here I go.
1. What is more profitable(theoretically, practically, by experience, etc) squareoff or exercise?
2. when to go for which?
3. which one gives more profit and in what situation?
4. how is the calculation done? For this I will take an example. Support if I had PowerGrid Call Option with Strike Price 105 @9.5 premium. On the day of expiry, this contract was @33-40 premium and Spot price was 136-140. which one would have been profitable and how would the calculation be?
Square Off
(Premium@sell - Premium@buy)*lot size
Exercise
(SpotPrice@close - Strike Price)*lot size?
(SpotPrice@sell - Strike Price)*lot size?
(SpotPrice@(depending of your answer) - (Strike Price+ Premium))*lot size?
more permutation......?
For simplicity sake please assume ONLY CALL Option and use the above example.
5. Which of them -square off or exercise is more riskier(market falling as expiry nears due to volatility, time decay, etc)
6. how will the settlement be done in both the cases. I know in case of square of the settlement is diff. bet. premium amounts. in case of exercise diff. bet. (Strike & Spot price)*lot size?
Plus in case of exercise it is a lot riskier since the Spot price is EOD price and not CMP right?
I know these are lot of questions but trust me they must have occurred to all people at some point in the process of trading and this forum is full of them time and again so let this be a definitive thread to close them all. then this thread can be made sticky based on how well it is answered.
so shoot.
Regards.