How to close position in options?????????

[samip2u]

Guys..
Pls clarify two doubts:

1.) when we Square off an option position. We enter into an opposite position to close the open position.
Suppose I have a Long Put and i wished to Square it off, So does that Square off makes me Put Writer to someone who wished to buy the Put option from me?
Will i be liable to the risk of an option writer by squaring off ??
2. ) How do we judge which option has enuough liquidity to trade in... as in how can u be confident enuf that square off is possible?

Pls clarify... u can mail me at [email protected]

regards...

 

[anuragmunjal]

hi.
the answer to the first ques. is ' yes' u will have to write a put. there is no question of any additional risk as u are closing off ur existing position, not creating a new one.
for checking the liquidity u can check the open interest of various options and compare them with each other.

 

[samip2u]

Thanks Anurag...
However.. if I am writing a Put as to Square off position... isn't is like a writing a Naked Put option... ? and wouldn't the buyer of that Put option can exercise his option and i would be liable to oblige...??

Simply... how Squaring off is diff from the risks of Writing an option?

thanks.

 

[trader.trends]

Samip2u
When you square off an existing long position you are not creating a new short position. You are only selling what you had. In shorting you will be selling what you do not have.
Imagine you had 100 Reliance share in your account. When you sell that 100 you are not creating a new open position. Whereas suppose you did not have 100 Reliance in your account but still sold 100 Reliance, then you would have opened a new short position.

 

[samip2u]

Friends...
Query regarding NIfty Option trading:
In Square off.. we pay the LTP for the option. What happens when I let my ITM option to expire, does the Exchange cash settles in on closing price OR ( Strike price - NIfty ) * Lot gets credited??

Ex: I am Long PUT @4800 at Rs190.. the option premium dropped drastically, so rather than Square off... i wish to let the option expire ITM...

If on expiry date.. Assume NIFTY at 4700 and 4800 PUT at 90
Will exchnage Credit : (4800 - 4700 ) * 50 = 5000

OR

credit Rs 90*50 = 4500 ???

So Expiry seems better than Exercise ( Assuming brokerage is not more than Rs 500 )

 

[samip2u]

In the above post, i meant.. Exercise seems better than Square off ???

 

[trader.trends]

Dear Samip2U
The exchange announces a settlement price at the end of the series. All trades futures and options are settled at this rate. If you are holding 4800 pe and the settlement price at expiry is at 4700 your pe is worth 100/- and the exchange will credit this amount to you.

 

[tvrssvk]

Hi all Seniors,

Sorry for intrupting the flow...I would like to knw whether trading options is similar to intraday trading....whether we have to sit in front of the system continously till the end of the trading day or whether we can trade option like swing trading a stock. Kindly provide the info.....

 

[AW10]

Friends...
Query regarding NIfty Option trading:
In Square off.. we pay the LTP for the option. What happens when I let my ITM option to expire, does the Exchange cash settles in on closing price OR ( Strike price - NIfty ) * Lot gets credited??

Ex: I am Long PUT @4800 at Rs190.. the option premium dropped drastically, so rather than Square off... i wish to let the option expire ITM...

If on expiry date.. Assume NIFTY at 4700 and 4800 PUT at 90
Will exchnage Credit : (4800 - 4700 ) * 50 = 5000

OR

credit Rs 90*50 = 4500 ???

So Expiry seems better than Exercise ( Assuming brokerage is not more than Rs 500 )

what if nifty is at 4801.. (market manipulation above/below strike price is part of the game of options writers on the day of expiry so it can happen.)

So your 4800 put expires worthless..and as PUT buyer, you will loose complete 190 rs.
Atleast if you decide to squareoff before expiry, u can get back atleast some money.

So your decision should be based on your view about the market. When u bought the put, you were bearish. After few days are u still bearish.. if yes then hold the put.
Else if your view has changed to bullish.. then squareoff the put, collect some money from market and take next trade..

Happy Trading

 

[anuragmunjal]

hi..
ur call or put is a derivative (in this case of nifty), therefore, it will always be squared off with the closing rate of nifty cash. the closing rate is calculated by taking the average of last half hour of trade of nifty and ur option position will be squared off with that rate.