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.
