Module 5 Options Theory for Professional Trading

Chapter 6

The Put Option selling


6.1 – Building the case

Previously we understood that, an option seller and the buyer are like two sides of the same coin. They have a diametrically opposite view on markets. Going by this, if the Put option buyer is bearish about the market, then clearly the put option seller must have a bullish view on the markets. Recollect we looked at the Bank Nifty’s chart in the previous chapter; we will review the same chart again, but from the perspective of a put option seller.

Image 1_ Bank Nifty

The typical thought process for the Put Option Seller would be something like this –

  1. Bank Nifty is trading at 18417
  2. 2 days ago Bank Nifty tested its resistance level at 18550 (resistance level is highlighted by a green horizontal line)
  3. 18550 is considered as resistance as there is a price action zone at this level which is well spaced in time (for people who are not familiar with the concept of resistance I would suggest you read about it here)
  4. I have highlighted the price action zone in a blue rectangular boxes
  5. Bank Nifty has attempted to crack the resistance level for the last 3 consecutive times
  6. All it needs is 1 good push (maybe a large sized bank announcing decent results – HDFC, ICICI, and SBI are expected to declare results soon)
  7. A positive cue plus a move above the resistance will set Bank Nifty on the upward trajectory
  8. Hence writing the Put Option and collecting the premiums may sound like a good idea

You may have a question at this stage – If the outlook is bullish, why write (sell) a put option and why not just buy a call option?

Well, the decision to either buy a call option or sell a put option really depends on how attractive the premiums are. At the time of taking the decision, if the call option has a low premium then buying a call option makes sense, likewise if the put option is trading at a very high premium then selling the put option (and therefore collecting the premium) makes sense. Of course to figure out  what exactly to do (buying a call option or selling a put option) depends on the attractiveness of the premium, and to judge how attractive the premium is you need some background knowledge on ‘option pricing’. Of course, going forward in this module we will understand option pricing.

So, with these thoughts assume the trader decides to write (sell) the 18400 Put option and collect Rs.315 as the premium.  As usual let us observe the P&L behavior for a Put Option seller and make a few generalizations.

Do Note – when you write options (regardless of Calls or Puts) margins are blocked in your account. We have discussed this perspective here, request you to go through the same.


6.2 – P&L behavior for the put option seller

Please do remember the calculation of the intrinsic value of the option remains the same for both writing a put option as well as buying a put option. However the P&L calculation changes, which we will discuss shortly. We will assume various possible scenarios on the expiry date and figure out how the P&L behaves.

Serial No. Possible values of spot Premium Received Intrinsic Value (IV) P&L (Premium – IV)
01 16195 + 315 18400 – 16195 = 2205 315 – 2205 = – 1890
02 16510 + 315 18400 – 16510 = 1890 315 – 1890 = – 1575
03 16825 + 315 18400 – 16825 = 1575 315 – 1575 = – 1260
04 17140 + 315 18400 – 17140 = 1260 315 – 1260 = – 945
05 17455 + 315 18400 – 17455 = 945 315 – 945 = – 630
06 17770 + 315 18400 – 17770 = 630 315 – 630 = – 315
07 18085 + 315 18400 – 18085 = 315 315 – 315 = 0
08 18400 + 315 18400 – 18400 = 0 315 – 0 = + 315
09 18715 + 315 18400 – 18715 = 0 315 – 0 = + 315
10 19030 + 315 18400 – 19030 = 0 315 – 0 = + 315
11 19345 + 315 18400 – 19345 = 0 315 – 0 = + 315
12 19660 + 315 18400 – 19660 = 0 315 – 0 = + 315

I would assume by now you will be in a position to easily generalize the P&L behavior upon expiry, especially considering the fact that we have done the same for the last 3 chapters. The generalizations are as below (make sure you set your eyes on row 8 as it’s the strike price for this trade) –

  1. The objective behind selling a put option is to collect the premiums and benefit from the bullish outlook on market. Therefore as we can see, the profit stays flat at Rs.315 (premium collected) as long as the spot price stays above the strike price.
    1. Generalization 1 – Sellers of the Put Options are profitable as long as long as the spot price remains at or higher than the strike price. In other words sell a put option only when you are bullish about the underlying or when you believe that the underlying will no longer continue to fall.
  2. As the spot price goes below the strike price (18400) the position starts to make a loss. Clearly there is no cap on how much loss the seller can experience here and it can be theoretically be unlimited
    1. Generalization 2 – A put option seller can potentially experience an unlimited loss as and when the spot price goes lower than the strike price.

Here is a general formula using which you can calculate the P&L from writing a Put Option position. Do bear in mind this formula is applicable on positions held till expiry.

P&L = Premium Recieved – [Max (0, Strike Price – Spot Price)]

Let us pick 2 random values and evaluate if the formula works –

  • 16510
  • 19660

@16510 (spot below strike, position has to be loss making)

= 315 – Max (0, 18400 -16510)

= 315 – 1890

= – 1575

@19660 (spot above strike, position has to be profitable, restricted to premium paid)

= 315 – Max (0, 18400 – 19660)

= 315 – Max (0, -1260)

=  315

Clearly both the results match the expected outcome.

Further, the breakdown point for a Put Option seller can be defined as a point where the Put Option seller starts making a loss after giving away all the premium he has collected –

Breakdown point = Strike Price – Premium Received

For the Bank Nifty, the breakdown point would be

= 18400 – 315

= 18085

So as per this definition of the breakdown point, at 18085 the put option seller should neither make any money nor lose any money. Do note this also means at this stage, he would lose the entire Premium he has collected. To validate this, let us apply the P&L formula and calculate the P&L at the breakdown point –

= 315 – Max (0, 18400 – 18085)

= 315 – Max (0, 315)

= 315 – 315


The result obtained in clearly in line with the expectation of the breakdown point.

6.3 – Put option seller’s Payoff

If we connect the P&L points (as seen in the table earlier) and develop a line chart, we should be able to observe the generalizations we have made on the Put option seller’s P&L. Please find below the same –

Image 3_Payoff

Here are a few things that you should appreciate from the chart above, remember 18400 is the strike price –

  1. The Put option seller experiences a loss only when the spot price goes below the strike price (18400 and lower)
  2. The loss is theoretically unlimited (therefore the risk)
  3. The Put Option seller will experience a profit (to the extent of premium received) as and when the spot price trades above the strike price
  4. The gains are restricted to the extent of premium received
  5. At the breakdown point (18085) the put option seller neither makes money nor losses money. However at this stage he gives up the entire premium he has received.
  6. You can observe that at the breakdown point, the P&L graph just starts to buckle down – from a positive territory to the neutral (no profit no loss) situation. It is only below this point the put option seller starts to lose money.

And with these points, hopefully you should have got the essence of Put Option selling. Over the last few chapters we have looked at both the call option and the put option from both the buyer and sellers perspective. In the next chapter we will quickly summarize the same and shift gear towards other essential concepts of Options.

Key takeaways from this chapter

  1. You sell a Put option when you are bullish on a stock or when you believe the stock price will no longer go down
  2. When you are bullish on the underlying you can either buy the call option or sell a put option. The decision depends on how attractive the premium is
  3. Option Premium pricing along with Option Greeks gives a sense of how attractive the premiums are
  4. The put option buyer and the seller have a symmetrically opposite P&L behavior
  5. When you sell a put option you receive premium
  6. Selling a put option requires you to deposit margin
  7. When you sell a put option your profit is limited to the extent of the premium you receive and your loss can potentially be unlimited
  8. P&L = Premium received – Max [0, (Strike Price – Spot Price)]
  9. Breakdown point = Strike Price – Premium Paid


  1. khyati verdhan says:

    thanks kartik for your reply on my previous question and also for the next chapter!
    my question is
    Q-since options are traded on premiums. is margin is available on premiums. i want yo ask is suppose i have 1,00,000 rs. and nifty 8280 call option is trading at a premium of 100. then by this i can buy 1000 shares of nifty. but can i buy more than this. if yes it can be NRML, MIS OR BO&CO

    • Karthik Rangappa says:

      Yes, margin on options is possible as long you choose to execute it as a BO or a CO order. Will talk about it soon in this module.

  2. Vidhyalakshmi says:

    Hi Karthik. The Nifty closed today at 8181 and here are the prices (at EOD) of May Put Options with various strike prices:

    MayPut8200: 119 (IV=19; Premium = 100)
    MayPut8300: 162 (IV=119; Premium = 43)
    MayPut8400: 215 (IV=219; Premium = -4)
    MayPut8500: 282 (IV=319; Premium = -37)
    MayPut8600: 359 (IV=419; Premium = -60)
    MayPut8700: 443 (IV=519; Premium = -76)
    MayPut8800: 534 (IV=619; Premium = -85)
    MayPut8900: 628 (IV=719; Premium = -91)
    MayPut9000: 723 (IV=819; Premium = -96)
    MayPut9100: 825 (IV=919; Premium = -94)

    The higher the IV of the option, the lower goes the premium cost. In fact, after a point, the premium has a negative value. What’s the catch?

    MayPut9000 seems to have the highest padding…that is, if my view is bearish, I can have a tolerance of 96 points for the Nifty to go in the opposite direction, before I start to make a loss. Am I right? Are there any pitfalls in choosing this method?

    • Karthik Rangappa says:

      Well, if you notice as you traverse away from the strike price which are away from the current market price the difference crops up. This is mainly attributable to liquidity and moneyness of options. In fact in chapter 8 (will take it live in few days) I will discuss this.

      • Partha Kundu says:

        My question is what happens when I sell a put and it hit strike price. Do I have to buy it in cash? If I do trading in nifty and want to buy nifty at lower price is selling put a good strategy? Then I can own the nifty and renew it for next expiry for gain.

        • Karthik Rangappa says:

          No buying cash (at least as of now). All options are settled in Cash. What you are suggesting is sort of a covered all. You will be long and short at the same time. Returns are low, but the volatility in P&L is also low.

  3. Vidhyalakshmi says:

    The MayCall8200 Option costs 181 (IV=0; Premium 181). Why is the premium cost for the Call Option so much more than the Put Option for the same strike price? Is that because the Option Sellers expect the Nifty to go up? I’ve been told that, more often than not, the Option Sellers (usually the experts) are on the right side. So here, the Option Sellers have a bullish view?

    • Karthik Rangappa says:

      No, this has nothing to do with expecatations. Option premiums are dictated by 4 forces called the option greeks –

      1) Direction of market (Delta)
      2) Rate of change of market prices (Gamma)
      3) Volatility of the market (Vega)
      4) Time to expiry (Theta)

      These forces simultaneously acts on Option (real time) and hence the premium keeps varying. We will talk about these Option Greeks and try to simplify it as much as we can.

  4. iyengarnsv says:

    In the option put selling you have given formula P & L =Premium Paid-[Max(0,strike price-spot price)]. As I understand in option put selling we do not pay the premium, however, we receive the premium and pay the margin amount. So I think it should be premium received. Am I correct. Please clarify.

  5. keshav says:

    Sir, what is the in the money and out of the money in options?

  6. keshav says:

    Sir, is the derivative market impact on spot stock price?

  7. spacenoxx says:

    Would like to know about the time frame you have in mind to complete this complete guide?

    • Karthik Rangappa says:

      We are trying our best to maintain a steady pace. I suppose another 3 – 4 weeks for the ‘Option Theory’ module to be complete.

  8. iyengarnsv says:

    Is this Correct

    Call Opt Buyer Bullish——-Go for ITM =Strike price < Spot price
    Call Opt Seller Bearish——-Go for Deep ITM= Strike price Spot price
    Put Opt Seller Bullish——-Go For Deep OTM= Strike price> Spot price

    I have a doubt about Put option

    • Karthik Rangappa says:

      This is Strike selection is dependent on quite a few variables. We will start discussing this from chapter 9 onward.

  9. iyengarnsv says:

    Is this Correct (In earlier question one line is missing. Sending again)

    Call Opt Buyer Bullish——-Go for ITM =Strike price < Spot price
    Call Opt Seller Bearish——-Go for Deep ITM= Strike price Spot price
    Put Opt Seller Bullish——-Go For Deep OTM= Strike price> Spot price

    I have a doubt about Put option

    • Karthik Rangappa says:

      Like I mentioned earlier strike selection is not a straight forward task. Required due diligence on various aspect. Please stay tuned, we will cover this topic in detail soon. Thanks.

  10. spacenoxx says:

    Forgot to say this earlier but this is an amazing effort by Zerodha. The guide is so well structured and explanations so detailed that just it makes the whole thing fun and exciting to read and understand how one should approach trading/investing.

    Like the Chinese proverb “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime” Zerodha actually does just that instead of giving Sell/Buy calls all day like just about all the brokers do.

    Once again thanks a bunch Zerodha. Karthik, even more so.

    • Karthik Rangappa says:

      Thank you so much for the kind words. This is very encouraging, motivates us to deliver better content everyday 🙂

  11. padwalshubham says:

    I’m new to Stock Markets. I want to start intraday trading, what are the things that I should know before getting started.
    P.S. I have read all the modules. Everything is explained so well that even a new born baby would understand markets. Thanks. ☺

    • Karthik Rangappa says:

      Thanks for the kind words and I’m glad you have read the modules 🙂

      If you are new to markets, I would suggest you start with small amounts and try out simple buy and hold strategy before you can graduate to intra day trading.

  12. kay kay says:

    sir, i have a query about margin.
    on 8th may , i sold one lot of put option of nifty ( write nifty put 7700 at 20) at 20 rs. at that time my account balance was 5000 but it showed your margin exceed and it should be 13219 rs.

    but i think the margin required is 20*25=1000 rs

    plz clarify

    • Karthik Rangappa says:

      20*25 = 1000 this is the premium amount you need to pay provided you are an option buyer. For a Options Seller the margins are blocked. The margins blocked are almost the same as the futures margin.

  13. pradeep patel says:

    hello sir,
    can we squarred off our writting position before expiry. let suppose if i sold 4 lot of nifty put option at 8400 strike price @ 55. so can i squarred off this position by buying 4 lot or it must be carried to expiry?????? i know writing an option is a obligation therotically but how it happens practically if we squarred off that order in a day

    • Karthik Rangappa says:

      You can write an option at 9:15 AM for 55 and square it off at 9:16 AM for 54 and in the process pocket 1 Rupee profit. So yes, you can when you write there is no obligation for you to hold on to it till expiry. You can square it off anytime you wish.

      • LIJO says:

        if i have sold an option, i do not square it off and it expires. what happens then?

        • Karthik Rangappa says:

          It gets settled at the moneyness of the option. In case the option is worthless, then it gets settled at zero.

          • LIJO says:

            What about the money invested and the premium received?

          • Karthik Rangappa says:

            You get to keep it, provided the option expires worthless.

          • Kaushal says:

            At the end of the expiry, writer of the option has to settle the contract at LTP or settlement price?
            for instance: I have seen option on the expiry day LTP = 70 rs but the settlment price is 0.
            being a writer, if i dont square off my option it will get settled at 70 or 0 ?

            Kaushal Mehta

          • Karthik Rangappa says:

            Settlement happens at the settlement price, Kushal.

          • Kaushal Mehta says:

            Karthik, sorry to bother you again, I am bit confused. I am putting an example, do help me in that.
            Call option writing.
            Expiry : 22/02/2018
            Strike Price : 10900 PE
            Underlying Price : 11016
            PE LTP on 1/02/2018 : 83/-
            PE price on 22/02/2018 : LTP = 513.80/- and settlement price = 0
            underlying price on 25/01/2018 = 10382
            1) (10900-10382)=518, 83-518 = -435/- Loss (this means i have to pay 435 ?)
            2) as the settlement price is 0/- i get the preminum of 83/- ( i am in profit of 83rs)
            3) simply 83-513.80 = -430.8/- loss

            What p/l will apply ?

          • Karthik Rangappa says:

            Kushal, I’m a little confused with dates here. Why are you going back to 25/01/2018? Also, is this call option writing or PE?

          • Kaushal Mehta says:

            The above example is of Put option writing.

          • Karthik Rangappa says:

            Ok, in this case, you wrote the put option at 83, but the option is now at 513.8, so you will lose 83 – 513.8 = 430.8

  14. pradeep patel says:

    Thank u sir

  15. pradeep patel says:

    got it
    but sir how can i get benefited if any option sold at lower price (in earlier example i e. 55) and squared off at higher price(i.e 56) as you explained above. plz explain

  16. vignesh says:

    if the option becomes inthemoney in equity stock assignment may happen or we have to buy it back.
    but in nifty we can only buy it back or how the assignment will work here

  17. SARATH says:

    hi karthik,
    one doubt in option trading we can trade both market up trend and down trend ,in uptrend we buy call and down trend we buy put ,then why we using option selling(shorting)?
    i never use shorting yet because i don’t more about it how its works after we short ,we get premium in advance right?

    • Karthik Rangappa says:

      Yes when you short options you receive premium. To appreciate why people short – I would suggest you read this

    • Shyamal says:

      In option. Never buy. Always Sell ( Short/ Write). No smart investor invests in a an asset which decreases its value with time( Time value – its call Theta). Sell far “Out of the Money” called OTM and get the Premium. That’s the way you make money in the long run. It is very easy to make 2-3 % in a month for a starter. 36% in a year! Do not expect more initially. With time once you get the grip of ” Option Selling”, I am sure you will never ever buy option again. Regards, Shyamal.

      • Vinod says:

        Hi Shyamal, I agree with you. option writing is always better than buying. Could you let me know your strategy of consistently making 2-3% by selling Deep OTM contracts, on what basis & how you select option strike price selection, throw some light on this, How do you hegde your position from sudden big moment?

  18. ShreyaDR says:

    What could be the consequenses if i sell OTM put option & waited till the expiry? in following senarios.
    e.g. presently Nifty is trading above 8500+, By lookig into margin requirements and the money i have, i decided to sell Nifty 8150 Put option @ 15.55 (yesterday mornings premium) which is either OTM or Deep OTM. this is just 5th day of August and 15/16 trading sessions are there till expiry. The premium is getting erode at very slow pace. today on 6th it is trading at 12.80 ( hence at present my position is in profit of 15.55-12.80 if decided to sq off)what if….
    1) Nifty started to fall say after 4/5 session (10 more sessions for expiry) and moves over below my strike price 8150. what will be the chances of increasing premium than 15.55? or with the time decay even though Nifty closes below 8150, premium may not go past 15.55?
    2) Nifty started to fall as mentioned earlier but could not move past 8150, and the premium is Rs.1.50/- on expiry day, then what will be my settlement price(0 or 1.50)?

    • Karthik Rangappa says:

      Shreya – This is from my personal experience, avoid shorting PUT options. Panic sets in faster than greed in market. Hence market falls faster than it can raise.

      Coming to your query –

      1) If market falls below 8150 clearly the premium can go much higher especially where there are more days for expiry. Therefore you will end up in a loss. Also do remember if the market goes below 8150 (your strike) then the option will have an intrinsic value.

      2) If Nifty stays at or above 8150 the 8150 PE will expiry worthless and you will get to keep the entire premium amount.

  19. siva says:

    1.For suppose if I sell 45 put (200) , stock is trading at 43 then stock gone down to 35 … how much i can get the profit.
    for selling put max credit only whould recive but how can we get maximun profit can get.

    2.If I go for long put 100 ,the premium will get affected by Greeks at the end of expiry. because premium keeps on changing day to day.
    If I go for spread how premium will get change? I understand the profit & loss and calculation based on strikes, for 1 point move up or down it is changing 1re up/dn.
    generally premium changed based on greeks so in spreads, how premium is changing based on for 1 point move up or down and it changes 1re up/dn.

    3.For protecting the short put we buy the put but in real time how buy put is compensating the short put for every 1re loss of short put?

    How this can happen in spreads?

    Thanks and Regards,

    • Karthik Rangappa says:

      Siva my answers are as follows –

      1) When you sell a put option you make a profit only when the stock stays flat or increases in value. When you are short put you do not make money when the spot goes lower than your strike.

      2) When you create spreads the overall position will have a Greeks equivalent to the sump of the individual option Greeks. More on this when we introduce spreads.

      3) To be completely insulated to market move you need to ensure your position;s delta is zero (also called Delta neutral). Suggest you read the chapter on Delta for more details.

  20. lakshmi says:

    The course has been very useful to me and am interested in option writing. But I am also aware that it is too risky to write an option apart from margin being blocked. I have used the margin calculators and found that the margin requirements are heavy. However, I have a doubt and wish you can clarify. nifty 8000pe is trading between 160 – 170 now. presuming that it nifty falls to, say 7800 in the next couple of days, the option premium should be about 360-370 or even a little higher. in effect, I would have lost about 5000 rupees per lot (October 26th expiry).
    a) Will RMS require me to add 5000 immediately (Despite margin blocked being more than 5000)? If that is not the case, when i will be required to add more money?
    b) Assuming spot price is strike price minus premium received, i will exit without any profit or loss on expiry day. Is that correct?

    • Karthik Rangappa says:

      1) If there are additional funds not utilized towards other trades then RMS wont require you to add the funds immediately. Also you may want to know that you need to have minimum of SPAN margin in your account, anything lesser than SPAN the RMS will cut the position

      2) Breakeven point for long put is Strike – premium paid.

      • lakshmi says:

        Thank you. probably i did not properly frame the question. What i wanted to know is the requirement of adding funds on a daily basis based on m2m losses. Assuming that i just place one sell order for some put options and there is no additional money left in the account, will i need to add the m2m loss immediately. For example, selling 10 lots of a put option may require 2.50 lakhs including span and exposure margins. assuming that it goes against my expectation on first or subsequent days, should i need to add the m2m loss immediately.

        • Karthik Rangappa says:

          Assume SPAN = 1 lakh and Exposure is 1.5L

          SPAN + Exposure = 2.5 (Total Margin)

          RMS allows you to hold the trade as long as you have at least 1 L (SPAN) in the account. Anything less than this they will cut your position. Also, it is always good to have slightly more than SPAN+Exposure for your trades.

  21. Sumeet Nagar says:

    Hi Karthik, I have few queries listed below..
    1. Suppose I buy a call option on 15th Oct @strike 1000 with premium = 100, lot size = 250 and I wait till expiry(lets say 26th Oct)..
    a) The M2M will be calculated on daily basis and amount will be adjusted in my account on daily basis?
    b) Suppose on the day of expiry I will exercise the contract and suppose the spot is at 1200, then my profit will be [(1200-1000)-100]*250.. Will this amount again be added to my account on expiry day? If not, what is the significance of this amount?
    c) For exercising a contract, do i need to explictly do anything to exercise it or the exchange will automatically exercise it on the expiry day?
    d) Profit/Loss during the series (not on expiry) = (Premium received – Premium paid) * 250… Am i right on this?…. In this case strike price and Spot price wont come into picture for calculating P&L right?

    • Karthik Rangappa says:

      1) Since you have paid the amount in full (premium) there is no M2M applicable here. You will be cash settled on expiry
      2) Yes, thats how profits are calculated and the same will be credited to your account
      3) Exchange will take care
      4) Yup, thats right

  22. ruchira roy choudhury says:

    Today I sold 10 lots of Nifty 8300CE @ 19.5 and received a premium of Rs. 4800 aprox.
    Should I wait for expiry or should I square off when I get a profit.
    What happens if I do not square off even at expiry? Do I get to keep the premium or will I book a loss.

    • Karthik Rangappa says:

      1) You can choose to hold this position till expiry or book profits when deemed suitable
      2) In case you dont square off the position on expiry the exchange will consider it closed

  23. Raghu says:

    If i sold option of October 8000 put options for some premium and if i don’t buy it back before expiry what will happen since Nifty expired at 8100.
    Is it just expired worth less or do i need to pay any tax, STT as seller of option

  24. Lalit Sharma says:

    Dear Mr. Rangappa,
    I have found that option writer generally makes to trade at the same time i.e. one trade of short put and another short call. Is it to minimize the loss since put and call will move in opposite direction. More over profit will be limited to premium received. Why to go for Short trade when they know that there is limited profit?

    • Karthik Rangappa says:

      Lalit – all these and more will be answered in the next module which is completely dedicated to Option Trading strategies. Request you to please stay tuned till then 🙂

  25. Ravish says:

    Hi, Please tell me that how may puts/call I can sell.For example if I have 200K INR in my account and I want to sell puts/call of market prize 100 RS. then how many puts/calls I would be able to sell.
    Thanks I advance

    Best Regards,

  26. Kumar says:

    Hi Karthik..
    Thanks for wonderful lessons.
    I have a basic doubt.. may be silly..
    If i am bullish, i buy call option.. if put option.
    Then why should one go for selling a put option if there is so much risk.. if the same can be done buying call option..


    • Karthik Rangappa says:

      Well, this is because there could a situation where the Put option premium has swelled so much (maybe due to high volatility) that writing that would seem more appropriate compared to buying expensive call options.

  27. Shrenik Shah says:

    I have one simple query: Assume I sell a put option at strike price 6800 of march 2016 options. Assume the premium is 30Rs and sold it at the start of the expiry. What if the Market takes a very strong bullish move and expires at 7500.
    I don’t want to sell it till expiry and I want to have the whole premium of 30Rs.
    Now my concerned is , since I sold 6800 put option, will I have any trouble in getting it executed on the expiry? Does liquidity play an important role or market will take care of it?
    I am little confused here.

    • Karthik Rangappa says:

      Liquidity does play a role, but if you are holding to expiry then the onus is on the exchange to make sure you get your dues.

  28. Deepak says:

    Sir if I sell bank nifty call of 15500 for March series say at premium of 300, but bank nifty moves higher and is at 15600 and there are still ten sessions left for expiry. If I think I had made wrong trade and decided to exit at 15600 how much will be deducted from premium I received of 300 per lot. Or I have to pay extra from my account. In simple term would I make some profit or loss. ( premium of 15500 pe may be at say 400)

    • Karthik Rangappa says:

      Since this is a short trade you will make a loss trade…if the premium goes to 400, then you will lose 100.

  29. Deepak says:

    Sorry it is 15500 ce.

  30. Raja says:

    Hi Karthik,
    Is there any tool to calculate Max Pain or any formula to calculate it manually ?? And lets say we have highest number of OI in 7500 CE and 7200 Put, so is there any way to get the exact number how much Call or Put has been written off by the option writers. Thanks in Advance.

  31. amit says:

    I wanted to ask that,
    If i sell sbi 140 put when spot is 180.
    At expiry if the stock is at 139 and i want to buy it as the put selling defines, so how to accomplish this??

  32. Mangesh Kumar says:


    Here is the scenario: –

    NIFTY is currently at 7970. I expect it to rise to 8100 in the next few trading sessions.Let’s say, I want to short 10 lots of NIFTY May 7700 PE @43 today which requires me to keep around 4,00,000/- as total margin. Premium receivable comes to around 30,000/- if I execute this position.

    Now, please clarify the following : –

    1) After 3 trading sessions, the premium is @ 20/- . What would be my NET P/L over here if I decide to close the position?

    2) After 3 trading sessions, the premium is @ 70/-. What would be my NET P/L over here if I decide to close the position? – Is it going to be 30,000 – 750*(70-43) = 9750/- or is it going to be a just a loss of 20,250/- ?

    Thanks and Regards,


    • Karthik Rangappa says:

      1) If you choose to close the position, you stand to gain 43 – 20 = 23 points times the lot size…so that would be 23*10*75 = 17250

      2) You will lose 70-43 = 27 point, translating to 20,250/-.

      • Nil's says:

        Where does the 75 comes into calculation ?

      • Raj says:

        Sell Put option:
        Spot price = 7970
        Strike price = [email protected] (an OTM contract)
        Expected price = 8100
        Here the delta is assumed not more than 0.16
        1. After 3 sessions if the spot price moves 130 points up, the new premium will be 20
        2. After 3 sessions if the spot price moves 437 points up, the new premium will be 70
        Now how the 70 will make a profit or loss ?
        Please correct where m wrong and show your view.
        Thank you

        • Karthik Rangappa says:

          The premium will go down as this is Put option. Remember, the Put option delta comes with a -ve sign indicating that the delta and movements in market move in opposite direction.

          • Raj says:

            Isn’t delta is +ve in the case of short/sell puts?
            I’m confused with the content. Kindly correct my views where m wrong.
            Thank you

          • Karthik Rangappa says:

            Short Put & Long Call = +ve Delta
            Long Put & Short Call = -ve Delta

  33. Raj says:

    Sorry Karthik, I might have confused you with my question. Please look for the points and correct wherever it’s wrong .
    1. In trading When we Buy first , we square it off by Selling.
    2. When we Sell first, we square it off by Buying.
    So in case of trading Option in premium,
    3. Buy Call = Underlying (↑) and Premium (↑)
    4. Buy Put = Underlying (↓) and Premium (↑)
    5. Sell Call = Underlying (↓) and Premium (↓)
    6. Sell Put = Underlying (↑) and Premium (↓)
    Should the premium move with the underlying like above ?

  34. I have 2 questions to help decide between calls and puts:

    1) Assume I am bullish , how do I chose between buying a call vs selling a put?
    2) Assume I am bearish, how do I chose between selling a call vs buying a put?

    • Karthik Rangappa says:

      This depends upon the premium. For example if you are bullish, volatility is high, and therefore the premiums are higher then I’d prefer to sell puts as opposed to buying expensive calls.

  35. SHIVA KUMAR says:

    Sir,Is there download option for option strategies. Am trying for long there is no download button.

  36. SATISH KG says:

    Dear sir,
    There is one correction need to be made for Break down formula(In Put Option Selling chapter) in “Key takeaways” Strike – Premium received” but it is mentioned as Premium Paid

  37. Sunil1928 says:

    Dear Mr Karthik,
    I have 2 questions. Recently I shorted [email protected]. Today position at Kite shows @4.0 with P&L 3750.
    1) Can I buy/ exit now? If I exit, shall I get ( premium 7750)+3750= 11500, or get the difference 7750-3750= 4000 only?
    2) When I tried by clicking the ‘exit’ button , the ‘modify’ page opened, and I got confused. How to exit/ buy back?
    Shall appreciate very much if you clarify this to me.

  38. sanjay says:

    sir I am a newbee in trading with little knowledge I trade in intraday only in nifty options I require your help to sort out in which strick prise should I trade in intraday .please help or sugguest a book to follow . hopefully help THANKS

  39. Amulya says:

    Sir, Suppose I took a Short put position of a Strike Price 50. I received a premium of Rs. 4. Next day Market price moved up to 55 and premium goes down to Rs.3. What will be it’s impact on my P/L? If I want to square off on that day.

  40. Devanand says:

    Why should one opt for writing call option when buying Put option is a better. I am questioning the very existence of writing Call/Put option.I hope you are able to understand my question.

    • Karthik Rangappa says:

      Each act of trading options comes with its own set of attributes. Pegging one (like buying Puts) against the other (like selling call) is not the right step towards understating options. A trader needs to be neutral and not get subjective on these things. The decision to buy a put or sell a call really depends on how the premiums are positioned. If due to high volatility the premiums are expensive…then it makes sense to sell Puts as opposed to buying expensive calls.

  41. Sanjay Kshemkalyani says:

    Question 1:
    At Nifty Spot Price = 8850, I sold 2 lots of 8750PE @ 17 i.e. Premium received – Rs 2550/-
    After some time Nifty goes down to 8835 and if I square off the above position @ 21 then what will be my profit?

    Question 2:
    At Nifty Spot Price = 8850, I sold 2 lots of 8750PE @ 17 i.e. Premium received – Rs 2550/-
    On the day of expiry Nifty spot closes at 8810 with the 8750PE primium value at 20. If I am not a available to square-off and the sold option expires then what will happen? Will there be any profit? Will that be adjusted to my account automatically without me squaring-off the trade manually?

    If the 8750PE primium value on expiry is 10 then what will I get/loose?

  42. Ashok says:

    Sorting Deep OTM money call option with huge investment on expiry day gives good return unless black swan event occurs. Right?

    • Ashok says:

      Sorry for the typo, i meant Shorting or Writing…

    • Karthik Rangappa says:

      Yes, you but the premiums will be too low…as low as 10 or 15 paisa.

      • Ashok says:

        Thank you. I wont be going that deep. I will go around 5 to 7 Rs. And also what does it mean by Naked selling of options?

      • Kranti says:

        Thanks Karthik, can you please confirm that When shorting an option on the day of expiry , in any case trade will not get sold by broker before 3:30 since a trader will be waiting for the contract to expire worthless (OOM)..?

        • Karthik Rangappa says:

          Whenever you short an option (or for that matter take up any leveraged trade), irrespective of the expiry day or not, if the position goes against you, you will be required to provide more margins, in the absence of which, the broker can close your position.

          • Kranti says:

            Thanks much for the reply —so as per the Zerodha margin calculator as of today, if i short Nifty 10200 CE (1 lot) with a premium of around 19.70, beneath will be the Combined margin requirements.

            Rs: 24,053
            Exposure margin
            Rs: 22,538
            Premium receivable
            Rs: 1,478
            Total margin
            Rs: 46,591

            Based on this my question is, if i have margin of 47000, can you give me the exact practical scenario when my position will get squired off by broker when i am making loss …(Will it be in terms of Margin i.e. until i make a loss of 47k or in terms of premium, say 19.70 become 21 or 22..?)

          • Karthik Rangappa says:

            Since you are short, you can hold the position as long as the margin requirement for this position is less than 46K. In case, the position goes against you, then the margins would be increased and therefore position would be lacked.

  43. Ashok says:


    Is there any ways to hedge futures with options? Is it possible?

  44. Arun says:

    I know that an option buyer can square off his position anytime before expiry but I am a little confused whether an option seller can square-off his position before expiry ( so as to book profits when the opportunity presents) or will he have to wait till the expiry compulsorily ?

  45. suresh says:

    Sir I have a question that
    Suppose on the expiry day I sell call option thats premium 10 suddenly eod premium 10 paisa and 5 paisa than i buy call option i make huge profit explane sir please



  47. Deepak srivastava says:

    What will happen if i didn’t square off my position. for eg I sold 9300 CE at 80 and nifty closed at 9200 on expiry day and my premium value becomes 0.05 paise with no buyer. will i get full 80 points in my account or need to pay heavy STT?

  48. Shiva Pathre says:

    Sir, suppose i buy nifty 9600 call 01 Lot @ 10 than i hv to pay rs 75×10 i.e. 750. But if i want to sell the same call @10 than how much amount it should need in my account. Pls explain me the formula used at selling a option.

  49. Shiva Pathre says:

    Sir, in the last 5/6 years i hv lost about 5lacs rs in nifty options. I am a medium class salaried person and just as a hobby doing trade in nifty options. But due to continuous loss stopped since 2017. Sir, i need your personal advise how can i recover this loss. .do you hv any specific article/chapter on nifty options only. Should i try my luck once more or closed it forever. Sir pls take your time and advise me thoroughly.

    • Karthik Rangappa says:

      Sorry to hear that, Shiva. First and foremost, you should never come to the market with an expectation of ‘trying out your luck’. You should trade only when you know the dynamics of the trade very well. For example, if you are buying a Nifty Call, you should give 100% convincing reason as to why you are buying, what is the target expectation, stop loss, etc etc. If the reasons are not convincing, then you should not trade.

      I can assure you with this kind of change in trading behavior, you can recover your loss.

  50. Vijay says:

    Dear Kathik,
    As an Option Writer (Put Option writer) to be precise,am i required to buy back the Puts i sold earlier before expiry?

    For example,if i sold(wrote) ten lots of Nifty 9000PE at 3.00 Rupees and on the day of expiry it goes down to 0.05 or 0.10 paise,do i need to cover my position as it is ITM for me as a Put Writer or can i let it expire on it’s own?

    Because the people i have been speaking to are giving contrasting answers,some say as a Put Writer if the premium goes down,my option becomes ITM from a Put writers perspective,so i should cover or else i would be given a penalty.

    While some others say,since i have already paid the STT by taking a short position earlier by writing the Nifty9000PE at 3.00 rupees,i don’t have to worry about covering it back since it’s OTM(But it’s OTM from a Put buyer’s perspective,isn’t it?

    So,who’s speaking the truth?If the Nifty Put that i wrote goes down from 3.00 rupees to 0.05 or 0.10 paise on the day of expiry,am i ITM or OTM? My broker said,i need to square it off because if i don’t i will be penalized by the exchange while others say,i don’t need to cover my Put Writing as it’s gonna explain worthless.Who’s right,who’s wrong?

    • Karthik Rangappa says:

      Buying back is not really necessary. You can even hold to expiry and let it worth expire worthless. Also, if a 3 Rupee option tanks to 0.05, then it is an OTM option, not ATM. You can just let the OTM options expire worthless. You need to track the sport price to assess if the option is ITM or OTM…tracking the premiums is not really a good approach.

      However, if you are an option buyer (Calls or Puts) and by expiry your option turns ITM, then you are better off closing the position as opposed to holding the position to expiry due to STT reasons. Do check this post for more clarity –

      Som remember…if you have sold an option…dont worry about expiry…if the option is worthless i.e if its OTM, then let it expire. However, if you have bought an option and the option turns to ITM, then close it before the expiry to avoid paying excess STT.

      • Vijay says:

        You guys at Zerodha are god sent angels.I mean it from the bottom of my heart.I thought the quickest possible reply i would get,would be around by Monday evening but to see you guys tirelessly replying back to queries posted here fills our hearts with warmth.So i really,really wish you guys……prosper and go on to achieve big things.

        So Dear Karthik,as per the reply you gave.It’s much better to track the spot price to the strike price to decide if it’s ITM,ATM or OTM.Sothe scenario i just presented.Let me try to simplify it further –

        I sold(wrote) Put Options of Nifty9000PE @3.00.
        [Spot Price of Nifty at the time of Put Writing was 9390]

        A day later on expiry,Nifty9000PE is trading at 0.05 paise towards the close of the markets.
        [Spot Price of Nifty is now at 9509,so the difference has increased even more since yesterday]

        So using that as an example,the Nifty9000PE is OTM,am i right?
        (Because Nifty Spot is 509 points ahead of the Nifty9000PE and it doesn’t matter
        if i am a Put Writer,since the Spot is 509 points on top of the Strike Price,its a nailed on OTM)

        As a Put Writer,as long as the Spot Price is way way ahead of my Strike Price then it’s an OTM,right?
        And since i have already paid the STT by taking a short position to begin my trade,there is no need
        for me to cover it off because i won’t be penalized by the exchange.Right?

        Please,please…… read this post of mine and reply back.I want to get it right and don’t wanna have any false notions.
        I am sorry,extremely sorry for keep tormenting you but i hope you understand.I promise this thread will end here.

        And apologies for getting your name wrong in the earlier post,it was a typo.
        Have a great weekend and once again,it means a lot to see you guys replying back.

        Good luck.:)

        • Karthik Rangappa says:

          Vijay, thanks so much for the good wishes and kind words…and you can keep the thread as long as you get a complete satifactory answer. This forum is meant for this. We exchange thoughts and gain knowledge from each other.

          Anyway, yes…if you are dealing with a PUT option, then the Option will be ITM if the spot price is below the strike price and will be OTM if the spot price is above the strike price. So in the example you’ve quoted, 9000 PE will be OTM considering the spot is 9509.

          Also, if you have written an option, you need not worry about the STT bit.

          Good luck and happy learning.

          • Vijay says:

            Dear Karthik,
            Yes,it’s crystal clear now.Thank you for showing such immense patience.I think that’s the USP of this forum along with the ease(be it the approach you take to explain something or the language that is used) with which you guys try to make us understand.The module and especially the posts are my ‘Go To’ source when it comes to gaining knowledge.I am seriously hooked on to it,i just love reading the queries and the responses given by the team at Zerodha.Learning was never this easy,i mean it.This act of yours is immeasurable and thanks for the invitation to keep the thread going but am totally satisfied now and I’m sure we’ll cross paths again.
            Until then thanks a zillion. 🙂


          • Karthik Rangappa says:

            Thanks for the kind words, Vijay! I hope to hear back from you again 🙂

            Happy learning!

  51. Manju says:

    I find buying PUT option is ITM is more beneficial than the OTM.
    for ex : Bank Nifty is trading at 24230
    buying any CE option will give the money .
    but if index goes down, 24300 PE or 24000 PE would give more premium than the 24000 PE or the 24100 PE.
    During downtrend, PUT Option in OTM will not get the required PREmium aswell.

    you thoughts ?
    — And when you find time, could you Please write some lessons on reading charts and how to use indicators to identify the direction .

  52. Pavan says:

    This question is on Option selling.. I have sold SOUTHBANK 35CE at 0.3.. by end of the contract period, if the share quotes at around 30rs and 35CE quotes at 0.05rs (only sellers).. should I need to buy back 35CE at 0.05 (this gives 0.25rs profit per lot) and close the contract or I can just leave it without out buying so that I will get 0.30rs profit per lot? My only concern is to buy at 0.05 to close the contract..

  53. Srinath says:

    Is there any way to predict how the stock/index will move based on the futures/options

  54. Adi says:

    A have a question regarding selling of put options. viz. Suppose, on the day of expiry, I have sold OPT-CNXBAN-17-Aug-2017-24200-PE at Rs 20 (Spot price : 24292). During the day, the spot price drops to 24250, thereby increasing the premium to say Rs 35. If I square off my position, I stand to lose Rs 35 – Rs 20 = Rs 15 per lot. However, If I wait till EOD (expiry) at the spot price is still holding above 24200, what happens in that case? The premium ought to drop to 0.1 by EOD? Do I get to pocket my entire premium?


  55. Arijit Banerjee says:

    Sir, I didn’t understand why the loss of a Put Option Seller is theoretically unlimited. Spot price can be ‘0’, not beyond that. So it make me think a Put Option seller will not bear unlimited risk. His maximum losing threshold is until the Spot Price becomes 0.

    • Karthik Rangappa says:

      True that. But imagine this – Infy right now is at 900…if you intend to write 900 PE, you will receive a premium of 10500 for a margin deposit of close to 70K. Now if Infy drops to 0 your loss will be close to 50L…that for all practical purpose is únlimited.

      • Arijit Banerjee says:

        Understood!! In practical sense, we can say it unlimited risk.
        But, on the same scenario,
        selling INFY 900 PE @ 21 (lot size: 500).
        Received Premium = 21 * 500 = 10500/-
        If Infy becomes ‘0’, then loss will be [(900 – 0)*500] – 10500 = 4,39,500/-
        Is there any mistake in my calculation?

  56. Ajay Bardia says:

    If spot is at 9900 I want to sell call of 10500 and put of 9500 how much margin I required

  57. Aarti says:

    Sir im new to option writing…i just wanted to know if im writing a put option n holding it till expiry the premium is goin to be 5p or 10 p…then it wil b profitable only every time …or wt other factors r responsible for p&l help

  58. Dr. Pankaj K Agarwal says:

    Dear Karthik
    My sincere thanks for excellent write-ups. However, i have an observation. You say that the put option seller might incur unlimited loss. But dont you think that the put option seller can incur a maximum loss equal to Strike Price-Premium? I mean, if the underlying price goes zero, he will have to buy a worthless asset for a price equal to Strike Price that’s all. Am i right?

  59. Sagar Kulkarni says:

    Hi Karthik,

    Please explain below scenario.

    If I buy Bank Nifty 25600 Put Option @ Rs. 38 but I did not sell it on the expiry. At the time of expiry if its value is @ Rs. 44 and Bank Nifty closes around 25516, then would I be in profit or loss ?

  60. Raj says:

    Do you conduct any class room training on derivative? If yes plz mail me the details I am very much interested to attend.. I am from Hyderabad.

  61. santosh patidar says:

    1.)Option seller pays STT while selling ?
    2.)Option buyer pays if price is in the money and goes to expiry, but when option buyer square off his position it is same as option selling, so here what about STT ?

  62. satish says:

    Hi Karthik
    If the Nifty is trading at 10400 and i intend to sell 10600 put (short sell) which is having a premium of 175 Rs. And there are 4 days for the expiry. On the expiry date if the nifty closes below 10600 say will close around 10500 will the premium of 175 Rs become zero.

    • Karthik Rangappa says:

      10600 PE is ITM, please don’t think of selling it. Two things (based on my personal trading experience) –

      1) Don’t write PUT options
      2) Don’t write ITM options.

  63. satish says:

    Hi Karthik
    If the Nifty is trading at 10400 and i intend to sell 10600 put (short sell) which is having a premium of 175 Rs. And there are 4 days for the expiry. On the expiry date if the nifty closes below 10600 say will close around 10500 will the premium of 175 Rs become zero.

  64. Manish Mehta says:

    I have a question about selling PUT. Yesterday, I sold India Cements March 28 PUT 160 for Rs. 5.15. Stock price of India Cements was Rs. 162. Today the stock price of India Cements is Rs. 159 and the PUT 160 option is at Rs. 6.90.

    1) If I close the PUT option today, do I get any premium ?
    2) On expiry day if India Cement stock price is at Rs. 155, and I close the PUT option for a loss do I get any premium ?


    • Karthik Rangappa says:

      1) Since you’ve sold the option, you will have to buy back at 6.90, so a loss of Rs.1.75/-
      2) No, you will make a deeper loss here.

      • Manish Mehta says:


        Ok thanks.

        If I do not close the PUT option on expiry day and India Cements is below strike price of Rs. 160 that means the option will get exercised. Does that mean I have to purchase India Cements stock in cash to fulfill my obligation ?


        • Karthik Rangappa says:

          The option will be exercised, however, it will be cash settled. Remember, when you short options, your broker will block margins. Hence no need to buy the actual shares from the market.

  65. Aasheesh says:

    Dear Karthik,

    Thanx for the module in options trading. I am a MBA student and have read lot about options, but the your way of explaining and the flow is great. Also I appreciate you make this knowledge and experience available for free to mass public…Great going Bro…!!

  66. Kranti says:


    Kindly explain in detail about below error which we usually see while sorting any option

    rms:rule: option strike price based on ltp percentage for entity account-xxxxx across exchange across segment across product

  67. Nancy says:

    Hi Karthik,
    I was doing a paper trade today to understand the put option writing. I chose Thursday as it was the weekly expiry day of Bank Nifty.The Bank nifty strike price I chose was BANKNIFTY 5TH APRIL 24,500 PE which was trading at 65 today afternoon at 1.30 pm. The spot price was above 24,500. By 2.30 the spot price went above 24,580 and eventually above 24,700 and the put option price became zero.
    My understanding is that I made a gross profit of 65*40( lot size )ie Rs 2600 per lot. Am I correct? What would have happened had the spot price gone below the strike price 24,500? I understand that the option put writer has an unlimited loss. But can you tell me what would be that amount of unlimited loss? Is it possible to quantify the loss assuming that I sold only one lot of banknifty.


    • Karthik Rangappa says:

      As long as the spot stays above your strike i.e 24500, you will retain the entire profit. So yes, you would have made 65*40. If the spot falls below the strike, then every point below the strike is a loss for you. So if the spot went to 24250, you would have made a loss of 250*40.

      Good luck and happy trading!

      • Nancy says:

        Thank you for the clarification. I observed that even when the spot price was slightly below the strike price of 24500 the premium was in the range of Rs 63-65. So if I write a put option at Rs65 and the spot goes below 24500 what are the alternatives available for me?

        1. Wait to see if the spot goes above 24500 (risk is more)
        2. Buy back the sold options at( say) 63 (limited risk)

        If I go for the second alternative I understand I can limit my loss to Rs 2 ie for one lot 2*40. Is my understanding right?


        • Karthik Rangappa says:

          ATM options are always tricky – even at the last minute. You can never call the direction in which it can swing. So yes, if you sell 24500 PE @ 65 and the spot goes below 24500, then you will make a loss to the extent of the spot going below the strike.

          1) Yes
          2) Yes, if you want to cover your loss

  68. Nancy says:


    Sorry I made a mistake while framing my query. Let me re- write my question. I meant, the premium was in the range of 66-68. and if I buy back at 67 can I limit my loss to Rs2 per lot.

  69. Kranti says:


    Is option M2M, exactly like futures,..? Zerodha customer care said NO “Only Future is (M2M)”

    If we go here “”…i could see below which is totally misleading..

    “Since the risk is unlimited for an option writer, the exchange blocks margin and similar to futures is marked to market at the end of every day. So to buy an option at Rs 100, you need to have only Rs 5000 ( Rs 100 x 50), but to write an option you will need around Rs 25,000 which is marked to market daily, which means that if there is a loss you are asked to bring in those funds to your trading account by end of the day.”

    • Karthik Rangappa says:

      Kranti, to write options you will need margins. In case of margin shortfall, you will be asked to make up for it. However, in case of intraday profit, the P&L will not be credited to your trading account, like a Futures contract.

      • Kranti says:

        Hi Kartick,

        Thanks much for your reply, I would like to understand this bit more with an small example
        Say I short 1 lot of bank nifty on any Wednesday (sell price 25 Rs) and at the end of the day price become 50Rs (I am maintaining the margin “both exposure as well as span”, even I have few extra cash in demat account) I decided to keep the trade as it is.,,,, On Thursday contract expires worthless (OTM)

        1) Is there any loss for me on Wednesday i.e. … zerodha going to recover my Wednesday loss of 25 rs either from free cash or margin as part of M2M (or there is no M2M in option)..? this is my original query..

        2.) What will be my overall Profit and Loss in this case .?

        A-(Would I gain 25 Rs as overall gain) OR

        B- (will it be no profit & no loss (if 25 rs debit will happen on Wednesday as part of M2M)

        • Karthik Rangappa says:

          1) No. However, additional margin money would have been blocked, which will be released when you close the position. So no loss, as long as the position moves in your favor.
          2) YOu will retain the entire premium of Rs.25
          2A) Yes
          2B) No

  70. Tushar Gadkari says:

    Sir, if I sell a put contract on a stock and the value falls below the strike price at or before expiry, will I be delivered the stock by the broker for the exercise price or will the difference in the market price and strike price be deducted from my account?

    For example:
    HPCL stock (1 lot = 1575 quantity)
    Market price on 25th April: Rs.298.05

    If on 25th April, I sell 31-May-2018, Rs.290 strike put @ Rs.10.35 premium and receive Rs.10.35*1575= Rs.16301.25

    Let us assume on 31-May-2018, if the stock drops and it is trading at Rs.275.

    Do I receive 1575 stock of HPCL at Rs.290 and Rs.1575*290 = Rs.4,56,750 get deducted from my account OR
    Does the difference (290-275)*1575 = Rs.23,625 get deducted from my bank account and I don’t receive the delivery of 1575 quantity of HPCL stocks.

    Your insight on the example is much appreciated. Thank you.

    • Karthik Rangappa says:

      Tushar, as of today, all stocks are cash settled. Meaning you will receive the difference in cash. However, I think the physical settlement will be back in the market starting July.

  71. ajay says:

    Hi, Currently NIFTY @10700 , if I short sell NIFTY MAY 11000 PE whose premium is 255 , and at expiry NIFTY expires at 10900 , will I get full premium of 75 x 255 = 19000 ?

    • Karthik Rangappa says:

      Since you are selling an ITM option (11000 PE when mkts is at 10700), the chances of losing the entire premium is quite high. Anyway, if the mkt expires at 10900, you will lose the 11000 – 10900 = 300 points on this.

  72. Anivesh says:

    I hv bought gmrinfra PE 17.5 @ 0.05, there are no buyers , I want to sell it back at same price, what if it doesn’t sell and it expires today

    • Karthik Rangappa says:

      Well, liquidity is a real issue with stock options. Guess the option will expire worthless, if you are unable to sell, then you will lose the premium paid.

  73. Manas Pandey says:

    Dear sir,
    Firstly no words can describe your sheer will to help out the fellow traders.
    Secondly sir in “key takeaways from this chapter” the last point says, Breakdown= Strike Price – Premium Paid……
    Shouldn’t it be recieved ?

  74. Manas Pandey says:

    Dear sir,
    I understood that in long calls & long puts, we can sqaure off whenever there is increase in premium & book profit but sir i am so very confused about squaring off when we have sold the options be it call or put.
    Suppose sir i am bearish about market & i tend to sell a call option. Now suppose i sell it at a particular strike say 11500, now suppose market actually falls as i expected so at what strike shall i buy it back, as my max profit would only be premium irrespective of how much the market falls so how would the profit be determined here ??

    • Karthik Rangappa says:

      The maximum profit when when you sell options is to the extent of premium received. For example if the premium received is 20, then the entire premium of 20 can be retained only when the contract expires. However, if the premium falls to say 15, you can square-off the position at 15 and pocket 5 as profits. So yes, even when you sell an option, you can square off anytime you wish.

  75. Pradeep Mishra says:

    Sorry same silly question but want to clarify.
    Suppose I sell 1 lot of NIFTY put option at 11500 at premium Rs 80
    And the amount from my account blocked as a margin is Rs 68000
    And market never came below 11500 and contract got expired on its expiry day then
    I’ll will get 80*75 = Rs 6000
    and my blocked margin = Rs 68000
    so the total amount that comes in my account will be 68000 + 6000 = 74000

  76. Onkar says:

    Hello sir, can you please clarify one doubt about options.
    ITM options never become zero due to Thier intrinsic value and OTM option becomes zero on expiry date due to no intrinsic value as well as time value. In that case why would anyone buy ITM options? Its way easier to sell call option or put option of Deep OTM. Like CMP is ₹250 then selling 300 or 310 CE option won’t be better to altst get premium bcz anyhow they are going to become zero by expiry date.
    On personal note – (I know it’s not that easy to make money in options but please clarify my doubt what I am missing or am I wrong in understanding options)

    • Karthik Rangappa says:

      People consider this as buying a lottery ticket, pay a low fee and hope for an asymmetric payoff, but this hardly works in reality 🙂

  77. Kamal says:

    Lets say I have sold a put option and the market actually falls to the strike price or lower. Can I at that point square off the option by actually buying a put option to limit my losses.

  78. Shyamal says:

    What is the Margin Zerodha holds to sell a lot of Bank Nifty( Near week expiry). Is it around Rs.65000.00 ? I was told Upstox holds only Rs.16000.00.
    Can you please throw some light on this. I shall be really grateful. I have just applied for a Zerodha account. Should be activated by tomorrow.
    I already have an account with AxisDirect. They holds around Rs.65000.00 too. They seems to pretty expensive. and also Boring plate form.


    • Shyamal, if you choose to hold a position overnight, you need to have the SPAN+ Exposure margin prescribed by the exchange, i.e., currently Rs 65,000 for Bank Nifty. This is standard across all brokers failing which there is a margin penalty levied by the exchange.
      For intraday, we provide 3 to 7 times leverage through means of bracket/cover order which includes a compulsory stop loss(to mitigate risk).
      Please check our margin calculator for the exact figures

  79. Shyamal says:

    Thank you Faisal. Always a pleasure to get answers from all of you.

  80. Vijay says:

    Can i sell a put option and then buy it back as the price decrease? ( Given i have a Mildly Bullish Stance on Nifty )

  81. Basil George says:

    Dear sir,
    If I have sold 1 lot hdfc bank 2160 pe for Rs.33 and if on expiry the stock trades at 2100 with 60 pe price, if I have bought back the put what will be my loss. Is it Rs. 8250+ charges(250×33)? or 60-33×250 ?

    • As soon as you shorted the option, you received Rs 8250(33*250) as a credit to your account. Now on expiry, you will be paying Rs 15,000(60*250) to the option buyer. Your net loss will be Rs 6,750(=(60-33)*250)

      • Basil George says:

        Thank you very much for reply. One more doubt, if iam not buying and expired what will be the result ( how much loss).

  82. Basil George says:

    Thank you very much for the reply. Please clarify one doubt if I have not bought back the the sold option and got expired what will be the result ( loss or profit)

  83. shiva says:

    Hi I am new to trading, please help me with problem.
    1>if i buy nifty or banknifty put option @Rs.120 on 21-feb and expiry date will be 07-Mar.
    On 22-feb price dropped to Rs.100. if I sell it on 22-feb. what will happen? or its same as Call options, contract will be closed on same day(sold time) or it will be closed on 7-Mar.?
    2> same as above if i have purchase put option for Rs 120 and it raised to Rs 250 on same day how it will effect on my premium, am I entitled to wait and see till expiry or contract will be closed immediately? (when price reached Rs 250)

    • Karthik Rangappa says:

      1) You will make a loss of 20 i.e you decide to sell at 100. Think of it as buying and selling a stock.
      2) Likewise, you will make a profit of 100.

  84. Sridhar V says:

    Dear Karthik,
    While selling a PUT margin money is blocked. What will happen to this blocked money and when will this money be available for me to trade.
    Or is there a scope that I will lose this margin money as well on expiry day.

    Please explain.


    • Karthik Rangappa says:

      Thats right, the blocked margin money will be released as soon as you close the trade. You can close it anytime you wish, even after a few minutes of writing a put option.

  85. Sanoj says:

    Let’s say I buy a call option of SBI for 300 and the value of the stock goes at 320 and I don’t sell it. Then how much profit will I get ? what will be STT ?

    • Karthik Rangappa says:

      You will have a notional gain of close to 20 Rupees, Sanoj. Profit will be realized only after you sell the position.

  86. Patel says:

    Suppose I short-sell put options.
    Now what I have understood here is I will get the the price of the option immediately, example I sell 1 lot of 75 and the price is 100, so I will get 75*100=7500 in my account.
    What will happen if:
    1) the price reaches 90 and I decide to close the position on the same day (intraday).
    2) the price reaches 110 and I decide to close the position on the same day.
    (Is is possible to close this sell position in put options on the same day and not wait till expiry)

    Please guide me if I have gone wrong.

    • Karthik Rangappa says:

      YOu will get 7500, only if the option closes at 0 by expiry.

      1) You will get 10*75 = 750 as profit
      2) You will make a loss of 750.

  87. Sundresh says:


    I am not able to buy or sell option of stock at market value, it gets rejected whenever I put a buy or sell trade, however when I use the Limit i.e entering a value to purchase I have to wait for it to reach the limit level, can this be sorted out.

    Your prompt reply will be of great assistance.

    • Karthik Rangappa says:

      Market orders are on stock options are disabled due to liquidity issues. If you want immediate execution, please a limit order with a higher price.

  88. Rahul says:

    Lets suppose I short any option say put :
    1. Will I get my full margin if I square off my trade before expiry.
    2. After expiry, Full margin is deposited or not ?
    3. Before squaring due to change in options’ premium price, margin also got changed and my margin becomes negative, Will zerodha charge for this. If yes how much %.

    • Karthik Rangappa says:

      1) Yes, the blocked margins will be reversed
      2) As long as you have a position, the margins will be blocked. Once you square off it will release
      3) No charges as such, but if you do not make good the margin shortfall, the position will be closed.

  89. Vrinda says:

    Hi, I wanted to Sell on 18th Apr 2019 Nifty 11500 PE (Expiry 25th Apr ) as 19th Apr is Trading Holiday. But , I couldn’t see that in my Kite platform. What is the cause?

    • Karthik Rangappa says:

      I see the contract on Kite, Vrinda. Can you check for it again?

      • Vrinda says:

        Is it that all the option contracts of a particular month(ex: NIFTY 2nd May 11500 PE) are shown with the expiry date mentioned with them except the the last expiry one(NIFTY 11500 PE)?

  90. Mark says:

    how to sell a covered put option in Zerodha?

  91. harsha says:

    Hi Karthik,

    NSE bans certain stock options from trading which cross above 90% of their market wide positions!!

    But, I’m able to see the volumes of those stock options during the ban period!

    How is this possible??

    • Karthik Rangappa says:

      During the ban period, no new positions can be initiated, however, old positions can be square off. This contributes to the volume.

  92. harsha says:

    Cheers! Thank you

  93. Dharmesh Shah says:

    dear Sir,

    If I buy 1 put of 11800 and sell 2 put of 11500.

    How much margin I need to pay, means for 1 lot or 2 lot?

  94. Mo says:

    Person A sells a put option of BANK NIFTY at 18400 @ premium 315. Let’s consider 2 instances:-
    1. The price increases and upon expiry he gets to pocket the premium. P&L = +315
    2. His directional view is absolutely wrong and upon expiry the price is at 18086. P&L = +1
    In both cases, Person A is making a profit irrespective of whether he is right or wrong. What I don’t understand is that A is making a profit on zero investment, since he receives the premium when he/she decides to sell. Of course, the margin will be blocked in his account but I don’t think that can be considered an investment, but rather an assurance amount. So do option writers really make unlimited return over investment(since anything over 0 is unlimited)?

    • Karthik Rangappa says:

      The calculations are right. However, this is not a profit of zero investment. The margins get blocked when you sell options, this of it as opportunity cost as there is no free money in reality 🙂

      So given that Option writers don’t make an unlimited return.

  95. Vishal says:

    If a person sell Put options ( out of the money) and during expiry stock is trading at high price and Put option seller is at profit.
    Due to any cause if he could’t square of , does it will auto square off and he will received both his profit & margin money?

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