Re: In fut What happens to counterparty when you square off your position before expi
Thanks for your reply Manish bhai, I too know that Indian Option market is volatile and liquid enough to trade. I just want to know, what is the provision in Exchange if such adverse scenario will arise. Does EXCHANGE plays the role as counter party?
I am attaching a snapshot of Nifty. In this snap if I am buyer (or seller) then who is seller (or buyer)? Market Maker ? who is that? If no 3rd party will interested to trade in this script till expiry, then what will happen with reference to my earlier question? I think you got my point?
Let me give u an example.. dt should clarify your doubt :
Lets say you own a flat which you bought for 50 lakhs. Now for some reason you want to sell it off in next 1 month (relate it to expiry). Apparently.. the real state is down.. and the area where you have your flat, doesn't have future growth.. so no body is interested in buying. What do you do.. how would u get the customer ?? Where will they come from ??
Scenario # 1 : You have to keep looking for a buyer.. or hold it till such time when news/other factors start to show dt ur property values is worth more than 50 laks. Now suddenly u will see numbers of buyer showing up.. where did they come from ?? Where were they before ?
Scenario # 2 : You can't keep looking for buyer.. its an emergency for you so even if you get 25lakhs for dt flat, you are ready to sell. You put an add for sale.. 25 lakhs for a flath which is worth 50 lakhs.. and suddenly numbers of buyer show up.. where did they come from ?? where were they before ??
Now back to your scenario dt you posted. 4500 calls options for June 2015 expiry..
Right now you may not find any ask or bid (buyer or seller) why coz dt level is way tooooo far. So buyers and sellers don't know if they buy/sell dt calls will they profit from that or make loss. The basic reason for trading the market is to make profit.. so why to trade something dt is sooo unsure. That is why u will see dt buyers and sellers are most active in the most current strikes.
Now letz say you still want to buy that 4500 call. Where will u get the seller from.. who will sell ?
No body is selling now.. so if you put a buy order in ur terminal.. it will jst be pending untill such time that another person (could be nyone like u) thinks dt it is worth selling dt strike. So u will find a seller and ur order will get fulfilled. In case you cancel your order before someone places sell.. then his sell order will continue to be pending (remember that flat wala scenario.. )
I hope ur doubts are just to understand the logic and they are clear now (hopefully
)
Also.. Exchange is just like market place where buyers and sellers meet. They have no role in who'z buyin.. why buying who he is etc. Itz like a vegetable markets (in crude sense).. where there are buyers and there are sellers. In vegetable market u can go and sell potatos.. or you can go as customer and buy potatoes from others. Market doesn't care who is buying and who is selling .. but if you buy or sell then they will charge u some taxes/maintenance etc (in stock market we hv taxes..brokerage etc) charges.