Say I write 1 Lot of SUNPHARMA 1450 CE at Rs 30 premium. Expires March 2024 and
I currently hold 700 shares of SUNPHARMA at Rs 1300/stock.
Net Credit = 700 (lot size)* 30 = Rs 21000
Assuming SUNPHARMA touches Rs 1500/stock, 1450CE expires ITM.
For seller’s view, I am bound to deliver 700 quantities of SUNPHARMA at Rs.1450/stock.
However, I bought this stock at Rs 1300 and now I am selling it at Rs 1450,
So the net credit is a profit of 105000 [700*(1450(sell)-1300(buy)] + 21000 (700*30 premium),
That’s my understanding, right? or Am I overlooking anything here.
I purposely do not consider the money that would have come from selling 700* (1550 current price) as a loss factor and am content to sell at 1450 as per the contract.
Appreciate support team for clarification.
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Yes, your understanding is correct.
Only the loss is based on the current purchase price you could have made 1500(spot closing)-1450(strike)=50*700=35000. As the premium credit is already 21000, the total loss would be 14000 as you preferred to sell the shares through physical settlement.
Please note that brokerage of 0.25% of the total physical delivery value is charged due to the additional effort and also all physical contracts such as stock delivery transactions will incur an STT levy of 0.1% of the contract value for both the buyer and and for the contract seller.
Read more about the physical settlement policy here.
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thanks @Ragavendran_M for the quick support and clarification.
The same assumption applies to the registration of the PE option. assuming the PUT writer is willing to deliver the inventory.
same example
Write 1 batch of SUNPHARMA 1450 PE at 70020 = 14000 credit
SUNPHARMA reaches 1400 by the end of March.
PE Writer must receive 700Rs 1450/stock. while the purchase price is 1400,?
The PE writer expects the stock to bounce back after a period and hence not worried about the current price.
in this case the PE writer can keep the premium of 14000 and has to deliver the stock by spending 1450700 = 9.8 Lacs.
Theoretically the loss could be 700 (1450-1400) = 35000 if the PE writer receives and sells it soon. (assumed: stock remains around Rs 1400 without much deviation)
This is the correct understanding, right?
Please ignore if there are too many assumptions, I’m just trying to relate my understanding to experienced people so I don’t get any false understanding.
Thanks in advance.
Yes, your understanding is correct.
thanks again.
Adding another question to the existing thread.
read through the link What is Zerodha’s policy for physical settlement of equity derivatives on maturity?
“Receipt or delivery of the entire value of contract stocks requires either full cash or stocks in the Zerodha account after expiration.”
If the customer already owns the contract value stock, there will be an increase in margin,
close to expiration if CE option converts to ATM/ITM?
[apart from the original margin blocked during the contract entry]
Yes, if you have a short option position, the margin on expiry day will increase to 50% of the contract value or 1.5 times the NRML margin (whichever is lower) irrespective of the available reserves in the demat account.
@Ragavendran_M sir.
Can you please guide for the following scenario?
Suppose I have 1 lot stock short and 1 lot stock pe short?
I guess those positions will be offset if he throws it…
But I want to understand the increased margin requirements near expiration…
I read the physical arrangement link…
I guess margins for both legs separately will increase…
Since I am short pe, will the margin requirements only increase on the expiration day for this pe leg?
What will be the increased requirements for futures contracts? End day or end week?
Can you please guide in detail?
Thanks
Both short term and future option spreads will only increase on the expiry day.
Thanks…
So, as I understand it, the margins increase on the expiration week only for long futures and options…whereas the margins increase only on the expiration day for futures and options…
I am right?
Only for the option the long margin will increase in the expiration week. For futures contracts (both long and short) and option short it will increase on the expiry day.
Thanks.
What about futures sir ji?
