Comment on Basics on Options Shorting/Writing
commented on
20 Aug 2014, 08:09 AM
Anirban, in India all futures and options are cash settled, so you don’t ever have to give or take stocks. So if you are short 980 puts at say Rs 5, and reliance drops from 1000 to 980, the value of puts might go up from Rs 5 to Rs 7. Since you are short, this Rs 2 increase would be your notional loss. So you can either buy back the option at Rs 7 to book this loss or else hold it till expiry. At the end of expiry, if Reliance is at 980 or any value over 980, the value of 980 puts will become 0 giving you Rs 5 ( x lot size) as profits.