Options Trading Exercising Regarding

#1
Hi All,

I am new to Options Trading in India. I would like to if I could buy/sell the shares by exercising my call/put options early.

Let me explain my question by example:

I have presently bought HUL call option at 275 for Rs.10 . At the time of expiry, the Stock is trading at Rs.290. I don't want to cash in the premium but would like to hold the stock by buying it at Rs.275.

I would like to know if it is possible

Thanks in Advance.

Rudraksh:confused:
 
#3
Re: Options Trading Excercising Regarding

Thanks for the reply Capricorn. I am still confused by the answer.I am posing my question below in an elaborate manner.

Options by definition are supposed to provide the right to buy the underlying stock.If they are cash settled, they are now becoming similar to Futures than options.

In American Style Options , normally when Call/Put Option Seller(Writer) sells the options they do it either for price protection of a stock they own(Call Writer) or get into a Stock at a price below the Strike Price in Future (Put Writer).

How can a Call/Put Writer efficiently hedge their risks when they are cash settled ? What is the kind of obligation the Option Writers have in India ?

Thanks in Advance,

PS: My Assumption here is that the Call/Put Option Buyer exercises the options much earlier than the expiry date. In that Scenario, what is the obligations of the Call/Put Option Seller (Writer) ?

Rudraksh :confused:
 

Capricorn

Well-Known Member
#4
Re: Options Trading Excercising Regarding

For a writer the obligation is the difference in premium for square off or strike and closing price in case of exercise. There is no exchange of equity. Hedging mechanism remains the same. If u own a stock u collect the premium and sell equity at the written/required strike, same applies to puts.

Buyers can square off or exercise at any time.
 
Last edited:
#5
Re: Options Trading Excercising Regarding

Dear Capricorn and Options traders,

Please help.. i sold 1 (covered) call of XYZ,

1. how will i know whether i have been assigned the option exercise? ( so that I can sell my collateral (covered) shares which are in profit)

please share if you know.. thanks
 

AW10

Well-Known Member
#6
Re: Options Trading Excercising Regarding

Dear Capricorn and Options traders,

Please help.. i sold 1 (covered) call of XYZ,

1. how will i know whether i have been assigned the option exercise? ( so that I can sell my collateral (covered) shares which are in profit)

please share if you know.. thanks
There are 2 places you will know whether you have been assigned or not
(atleast thats where I found out whenever I was assigned)

1) Check you open option positions screen. If it still show short option position, then you are not assigned yet. Once assigned, the broker will close your net open position and settle it for cash
2) You account ledger balance will show an debit entry

Brokers may not give u a call to tell that you have been assigned. But if assignment result in -ive balance then they may call to collect the margin.

Generally people have fear about the assignment but IMO Option assignment is one of the best thing that could happen to option writer.
If it is resulting in profit, then u don't have to wait till expiry and be happy to collect the max profit early. Your capital is released with profit.
If it is in loss, then it is sort of forced stop loss exeuction. Good for the loosing position
as we just cut our losses.

Happy Trading
 

Similar threads