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  #1  
Old 28th October 2010, 04:38 PM
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Default Very Urgent: Exercise of Call Option



I've bought 2 lots of IDBI call options at a strike price of 180 for an average premium of 1.5 rupees.

Today, IDBI closed at 185.3 on NSE as at 3.30 pm.

But, I did not square off my call option, because buyers were quoting less than one rupee.

I understand that if a call option is not squared off on expiry, the the difference between the Closing price (on NSE at 3.30 pm) and strike price will be credited in the buyers a/c. In my case 185.3-180 = 5.30.

5.30*2 lots or 5.30*4000=21200/-.

Will I receive Rs.21200/-.

Please revert back to me.

I'm very tensed.

Really appreciate you reply.

NOTE: I understand that there is also "AFTER-SESSION FOR NIFTY AND SENSEX SCRIPS after 3.45 pm till 4.00 PM. Is the closing price of after-session considered for exercise settlement of derivatives or is the normal closing session considered.

Vivek

Last edited by vvivek : 28th October 2010 at 05:06 PM.
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  #2  
Old 28th October 2010, 06:04 PM
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Unfortunately, you won't make any money.

The "Close Price" in the cash market will be considered as the settlement price.

In your case, the close price is 180.15 and not 185.30.

185.30 is the "Last Traded Price".

In the "Closing Session", all trades are done at the cash market close price.
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Old 28th October 2010, 06:55 PM
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Hey Alchemist,

The Normal Closing is at 3.30 PM. As at 3.30 pm, the IDBI closed at 185.30. I'm damn sure about the closing.

However, when I checked the markets, in the after-hour closing session i.e., 3.50-4.00 PM, there were pending buy orders for IDBI at 180 odd with no sellers available and the Last Traded price was shown as 180 odd. That's why I'm worried.

In my view, derivative settlement should be cash settled at the normal closing hour price which is 185.30 at 3.30 pm (and not 180 odd at 4.00 pm).

Is there a way, to find out what was the price of IDBI at 3.30 PM?
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Old 28th October 2010, 07:08 PM
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The "closing price" is defined as last half an hour weighted average price.

The price of the last trade (3:30 PM) is the "Last Traded Price".

In case of IDBI Bank, the LTP was 185.30, but this price won't be used for settlement.

Settlement will be done based on the "Closing Price".
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Old 28th October 2010, 07:09 PM
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Quote:
Originally Posted by vvivek View Post
Hey Alchemist,

The Normal Closing is at 3.30 PM. As at 3.30 pm, the IDBI closed at 185.30. I'm damn sure about the closing.

However, when I checked the markets, in the after-hour closing session i.e., 3.50-4.00 PM, there were pending buy orders for IDBI at 180 odd with no sellers available and the Last Traded price was shown as 180 odd. That's why I'm worried.

In my view, derivative settlement should be cash settled at the normal closing hour price which is 185.30 at 3.30 pm (and not 180 odd at 4.00 pm).

Is there a way, to find out what was the price of IDBI at 3.30 PM?
The price at 3:30 was last traded price. But the price you seen at 3:50 was average price between 3:00 to 3:30. For derivative, settlement price is average price of last half an hour. In this case it will be Rs 180.
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Old 28th October 2010, 07:47 PM
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I knew IDBI was coming out with results today and I expected it to be very good.

I was eagerly waiting for the results since morning.

Most of the Banks, like Andhra Bank, PNB, Bank of Baroda etc declared their results in the afternoon before 2.00 PM.

But, this IDBI Bank declared the results at the 3.05 or 3.10 pm.

Had it declared the results around 2.30 pm or so, the last half-an-hour average price would have been more than 183 and I would have made good profit.

I feel very frustrated because of wrong timing by IDBI
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Old 28th October 2010, 08:18 PM
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The final settlement of the expiring option contracts would be based on the closing price of the underlying stock. The following algorithm is used for calculating closing value of the individual stocks in the cash segment of NSE.

* Weighted average price of all the trades in the last thirty minutes of the continuous trading session.

* If there are no trades during the last thirty minutes, then the last traded price in the continuous trading session would be taken as the official closing price.

It is your bad luck that IDBI came out with good results at INAPPROPRIATE TIME.

You could have at least squared off your open positions at 50 Paisa * 4000, thereby recovering at least Rs.2000/-.

Better luck next time.
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Old 28th October 2010, 08:27 PM
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Quote:
Originally Posted by vvivek View Post
I knew IDBI was coming out with Results today and I expected it to be very good.

I was eagerly waiting for the results since morning.

Most of the Banks, like Andhra Bank, PNB, Bank of Baroda etc declared their results in the afternoon before 2.00 pm.

But, this IDBI Bank declared the results at the 3.05 or 3.10 pm.

Had it declared the results around 2.30 pm or so, the last half-an-hour average price would have been more than 183 and I would have made good profit.

I feel very frustrated because of wrong timing by IDBI
There can be more bad news. You will make a profit of 15 paisa per share. However you will have to pay STT of around 22.5 paisa per share. Also you have to pay the brokerages to your broker. So you have to pay more than what you have already paid.

In my opinion, there should be an option to let my option lapse in case my brokerage and other charges are more than the profit.
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Old 29th October 2010, 01:24 PM
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Quote:
Originally Posted by rajivka View Post
There can be more bad news. You will make a profit of 15 paisa per share. However you will have to pay STT of around 22.5 paisa per share. Also you have to pay the brokerages to your broker. So you have to pay more than what you have already paid.

In my opinion, there should be an option to let my option lapse in case my brokerage and other charges are more than the profit.
No, when you have not squared-off a call option where the close price on expiry is more than strike price you need not pay STT and there is no question of brokerage.

Total (0.15*4000*2) should be credited to your ledger account.

Had it been the situation that the strike price is more than closed price then you have to pay STT, but no need to pay brokerage.
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Old 29th October 2010, 05:23 PM
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Quote:
Originally Posted by ashish_jain11 View Post
No, when you have not squared-off a call option where the close price on expiry is more than strike price you need not pay STT and there is no question of brokerage.
Total (0.15*4000*2) should be credited to your ledger account.
As per my knowledge you have to pay brokerage and STT both for in money options. At least I have been charged both by brokers.

Quote:
Had it been the situation that the strike price is more than closed price then you have to pay STT, but no need to pay brokerage.
For out of money, you don't need to pay anything. Neither STT nor brokerage. On many occasions my options expired out of money. But I never paid anything for out of money option.
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