Comment on Basics on Options Shorting/Writing

Nithin Kamath commented on 12 May 2014, 04:29 PM

1. Square off is when you exit the option position that you are already holding. All options in India are cash settled and European(which means you can exercise them only on the expiry day). So in the Indian context, if you don’t square off your buy option positions until the expiry day, after expiry the option is considered exercised. So if Nifty on expiry day is 6950 and you are holding 6900 calls which you don’t square off in the market. This option is considered exercised and after 3.30pm, the position is cash settled and you get back Rs 2500 (50 x 50).

2. In the indian context there is no assignment anymore in the pure terms. But generally what assignment means is that if you have bought call options and I have shorted call options, if you decide to exercise the call option (right to buy), I might get assigned and have to deliver the stock to you. But as I said, in India all options are cash settled and there is no concept of assignment.

3. Cash settlement is when you exercise or at end of expiry you get back cash, if you get stock it is called stock settlement.

4. As I said there is no stock settlement, if you short 990CE and on expiry day you will have to give back only if Reliance is above 990, if reliance closes below 990 u don’t have to give back anything.

5. Same cash settlement

I’d advise you to read the modules on derivatives available on the NSE site. Click this link

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