sell option

butta_trader said:
Could u explain clearly
for the closing price higher and lower for CALL option and PUT option
Its like this...
Nifty today at 2050 on Feb 1.
you sell Nifty Feb. 2150 Call option at 10 Rs. today. -- Some one bought 2150 Call from you.

your buyer - has 3 option
1) He comes to exercise his right, in middle.
Here, Exchange decide some seller like you & ask you to pay any diff.
1a) If nifty is at 1900. --- (Fool buyer - who is coming to exercise.) I think exchange will not allow this.
1b) If nifty at 2160 ----- (Buyer will ask for 10 Rs from exchange) & you have to pay that.

2) He sell his option.
3) Like you buyer wait for 26Feb.

3a) Nifty at 2140. --- You win. Buyer lose.
3b) Nifty at 2170 ---- You have to pay 20 Rs.
3c) Nifty at 2200 ---- You have to pay 50 Rs even you just got 10 Rs when you sold this call option.

On the date of expiry or the date of exercise of the option by the buyer of the call you will have to pay the difference between the market price and the strike price. For example if you have sold a 650 call option in SBI for 10Rs and on 24th feb 2005 the SBI script closes at 675 you will have to pay the buyer 25Rs per share of the SBI lot. :(

In case the SBI script closes at or below 650, you do not have to pay anything. :D

Hope this helps.
If I sell an option, can I decide the price at which my option will be exercised ? Last month I had bought Maruti option, which was worth 30k for me when Maruti touched 500. However, I got greedy and waited for it to go up, but alas, it went down and I was hardly able to recover my purchase price. What if I had exercised when Maruti was at 500 ?
I know the exchange assigns the exercise to a seller randomly, is it not luck then, because if I was the seller of the call option I could have been exercised at 500 or even at 450 ??

strictly speaking you cannot decide the exercise price - because it is the closing price ( not the last value but the avg of the last 30 min ) on the day you exercise the option.You need not worry about the option seller - generally they are interested in the premium only and would take a covering position in the futures should the trend turn , else the naked option writer would have a short lifespan in the market !

K Kannamthanam

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