Sebi allows physical settlement in F&O (Q&A)

[cool_kk]

Hi

As most of the senior members knows about this.

http://www.hindustantimes.com/Sebi-allows-physical-settlement-in-F-amp-O/Article1-572855.aspx


Can some one explain little bit more.

Is this covered call option will be true in our market ?

Suppose I have 1 lot of shares of XYZ company
I bought @ 1000 rs 1 year back. I am OK to sell them @ 1200 and can get rid of it.

I sell a call 1200 @ 20Rs to eat prem.. i.e 50*20=1000 rs.

If it doesn't reaches 1200 I will keep prem.
But if it reaches above 1200, I am ready to give delivery based shares to other party.

Seniors please explain this.

Thanks

 

[praveen98]

hi cool kk,
You are the option writer so the choice rests with the option buyer whether to take delivery of shares or not. Option writer or seller cannot ask the buyer to exercise his right..because it is option buyers choice.
all the best

 

[rkkarnani]

Hi

As most of the senior members knows about this.

http://www.hindustantimes.com/Sebi-allows-physical-settlement-in-F-amp-O/Article1-572855.aspx


Can some one explain little bit more.

Is this covered call option will be true in our market ?

Suppose I have 1 lot of shares of XYZ company
I bought @ 1000 rs 1 year back. I am OK to sell them @ 1200 and can get rid of it.

I sell a call 1200 @ 20Rs to eat prem.. i.e 50*20=1000 rs.

If it doesn't reaches 1200 I will keep prem.
But if it reaches above 1200, I am ready to give delivery based shares to other party.

Seniors please explain this.

Thanks

I suppose your logic is correct. You loose rupee for a rupee above 1200. Suppose price reaches 1250 so you will have to pay the difference of Rs.50/- but you can always sell your holding at CMP of 1250/-.
So if you sell your holding at 1250, in fact you sold your holding at Rs.1220(1200+20 premium received). One should sell a bit out of Money Calls to gain Premium and do it if they are ready and willing to liquidate their holdings at strike price. In USA people do it regularly and call it collecting Dividend without the company announcing one.
Note : My observation is based on whatever little I have read and common sense. I have not read the SEBI circular.

 

[Capricorn]

Hi

As most of the senior members knows about this.

http://www.hindustantimes.com/Sebi-allows-physical-settlement-in-F-amp-O/Article1-572855.aspx


Can some one explain little bit more.

Is this covered call option will be true in our market ?

Suppose I have 1 lot of shares of XYZ company
I bought @ 1000 rs 1 year back. I am OK to sell them @ 1200 and can get rid of it.


I sell a call 1200 @ 20Rs to eat prem.. i.e 50*20=1000 rs.

If it doesn't reaches 1200 I will keep prem.
But if it reaches above 1200, I am ready to give delivery based shares to other party.

Seniors please explain this.

Thanks

When physical settlement comes into effect your shares will just be called away when you get assigned. Rest of the logic remains the same. Cheers...

 

[cool_kk]

I suppose your logic is correct. You loose rupee for a rupee above 1200. Suppose price reaches 1250 so you will have to pay the difference of Rs.50/- but you can always sell your holding at CMP of 1250/-.
So if you sell your holding at 1250, in fact you sold your holding at Rs.1220(1200+20 premium received). One should sell a bit out of Money Calls to gain Premium and do it if they are ready and willing to liquidate their holdings at strike price. In USA people do it regularly and call it collecting Dividend without the company announcing one.
Note : My observation is based on whatever little I have read and common sense. I have not read the SEBI circular.

Thanks.. yes, I was reading USA securities only then assume this.
I guesss its a good way of earning and making premimum.

 

[RAWT]

hi
sorry to not posted to forum ,physical settlement in option trading is beneficial or harmful for invester,plz explain any one
rds

 

[RAWT]

hi
in next week can we see nifty 5500 or not plz reply

 

[Capricorn]

hi
sorry to not posted to forum ,physical settlement in option trading is beneficial or harmful for invester,plz explain any one
rds

Both physical and cash settled will co -exist as SEBI has clarified.

 

[optionwala]

Any idea by when brokers will allow physical settlement from?

 

[cool_kk]

Any idea by when brokers will allow physical settlement from?

As my reading in newspapers,Within 6 months they have to allow on all securities.