I'm a beginner and learning about Options trading and interested in it more than Futures, which I find very risky.
I'm mostly interested in intraday trades on Options of largecap bluechip NIFTY stocks and booking the difference in the premium as my profit (or loss!).
But suppose I'm holding a PUT Options Contract till Expiry. Then what? For example, let's say I'm bearish on Axis Bank stock and I BUY the 30-May-2013 1480 PE Contract at a premium of Rs 50, since I hope the price of Axis Bank will stay below Rs 1480 for the rest of May. The lot size is 250 and my breakeven point is Rs 1430. Now, suppose my prediction goes right and on Expiry day Axis Bank quotes at Rs 1400 per share and my PUT Option is profitable by Rs 7500 (Rs 30*250).
But, at the same time, I don't have any shares of Axis Bank in my Demat account holdings, whereas the PUT Options contract means I have to sell 250 shares since I have continued holding it till Expiry.
Now what happens? Will this contract get exercised automatically by the Exchange? But I don't own any Axis Bank shares! If I become "SHORT" in it, do I become "SHORT" in its Futures (which I want to avoid)? (since shorting in Cash is allowed only intraday). Or will I be forced to BUY 250 shares of Axis Bank from the market at the market price of Rs 1400 with my own money and sell it at Rs 1480?
Can someone explain what basically happens?
Thanks!
I'm mostly interested in intraday trades on Options of largecap bluechip NIFTY stocks and booking the difference in the premium as my profit (or loss!).
But suppose I'm holding a PUT Options Contract till Expiry. Then what? For example, let's say I'm bearish on Axis Bank stock and I BUY the 30-May-2013 1480 PE Contract at a premium of Rs 50, since I hope the price of Axis Bank will stay below Rs 1480 for the rest of May. The lot size is 250 and my breakeven point is Rs 1430. Now, suppose my prediction goes right and on Expiry day Axis Bank quotes at Rs 1400 per share and my PUT Option is profitable by Rs 7500 (Rs 30*250).
But, at the same time, I don't have any shares of Axis Bank in my Demat account holdings, whereas the PUT Options contract means I have to sell 250 shares since I have continued holding it till Expiry.
Now what happens? Will this contract get exercised automatically by the Exchange? But I don't own any Axis Bank shares! If I become "SHORT" in it, do I become "SHORT" in its Futures (which I want to avoid)? (since shorting in Cash is allowed only intraday). Or will I be forced to BUY 250 shares of Axis Bank from the market at the market price of Rs 1400 with my own money and sell it at Rs 1480?
Can someone explain what basically happens?
Thanks!