Comment on Basics on Options Shorting/Writing
commented on
14 Mar 2014, 09:56 PM
Hi Raj,
Once you have short an option, you don’t really need to cover it on the expiry day, it will get cash settled.
1. Inc case option expires out of money(your first example), the option expires at 0, so you get to keep the entire premium, and since it expires worthless there is no brokerage or other costs to this trade.
2. If it expires in the money, 6500 call will expire at Rs 400 (Rs 20,000 of premium), this much money would be debited from you and given to the buyer of the option.
You don’t have to worry about STT when you short options because you would have already paid STT, and it doesn’t matter if you let the option expire worthless or in the money. STT component plays a part when your buy options expire in the money, check this blog.