I didn't understand this explanation. I will ask my doubt with an example. Please, someone, clear it.
Suppose, I have 250 Shares of Bajaj Finance which is also its F&O lot. My buying price is 4500 and CMP is 5000. I sold next month's far OTM call of strike 5500 @ 250. So I got a premium of 250*250= 62500. My plan is to square off this position @ 100 or below next month, due to premium decay, so I will get the profit of ~150 and keep my holding intact.
But, instead, the price shoots to 6000 and my option is now trading at 500. So now I'm at a loss of 250*250=62500. Now, what should I do? Should I exercise the option because I have equity shares? Do normally people exercise options? If I exercise than will I get my money @5500 which is my strike price or @6000 which is CMP?
Suppose, I have 250 Shares of Bajaj Finance which is also its F&O lot. My buying price is 4500 and CMP is 5000. I sold next month's far OTM call of strike 5500 @ 250. So I got a premium of 250*250= 62500. My plan is to square off this position @ 100 or below next month, due to premium decay, so I will get the profit of ~150 and keep my holding intact.
But, instead, the price shoots to 6000 and my option is now trading at 500. So now I'm at a loss of 250*250=62500. Now, what should I do? Should I exercise the option because I have equity shares? Do normally people exercise options? If I exercise than will I get my money @5500 which is my strike price or @6000 which is CMP?
Please clear my doubt. Thnx