I HAVE BOUGHT AN OPTION & PAID THE PREMIUM FOR IT, HOW TO SETTLE IT?

Once you buy an option call put , you have following alternatives to settle the Option call put.

Squaring Off:  You can square off your position before the expiration date by selling the same Call option call put  of the same underlying, strike price and the expiration date that you have bought. For example, if you have purchased 1 lot of Nifty 50 Call of strike price 10700 for April 26 expiry then to square off you need to sell 1 lot of Nifty 50 10700 for April 26. You will earn a premium on selling the Option call put . The net of premium paid when you bought Option call put  and premium received when you sold Option call put  will be your profit or loss.

Profit/Loss= Premium Paid-Premium Received

Some traders also choose to buy a Put option call put  of the same underlying, strike price and expiry date to offset their losses from Call option call put . However, for beginners, squaring off by selling a Call option call put  is the better alternative.

 Exercise the Option call put : Option call put give you right, but not the obligation, to buy or sell the underlying at a predetermined price and time. You can exercise your right and ask the seller to honor the contract. You can exercise the Option call put  before the expiration date in case you’re holding American Option call put . For European Option call put , you can exercise the Option call put  only on the date of expiration.

Allow it to expire worthless: In case, you Option call put  is not profitable then you can also choose to allow it to expire worthless by doing nothing. Most of the Option call put s expire worthless on the expiration date.

 Tax rates on each of these alternatives vary. So, it is advisable to understand the taxation rules before settling the Option call put.