How to settle an option that I have bought and paid the premium ?

You have the following options to settle an Option after you've bought it.

• You can make your position equal before expiration by selling the same Call option with the same underlying, strike cost and expiration date. If you bought 1 lot Nifty 50 Call with strike price 10700 on April 26, then you will need to sell 1 lot Nifty 50 10700 on April 26. Selling the Option will result in a premium. Your profit or loss will depend on the net premium you paid to buy Option and the premium you receive when you sell Option.

Loss/Profit= Premium Paid Premium

To offset losses from the Call option, some traders may also opt to purchase a Put option with the same strike price, expiry date and underlying. For beginners, however, it is better to sell a Call option instead of squaring off.

• You can exercise the option:Options grant you the right but not the obligation to purchase or sell the underlying at a set price and time. You can ask the seller to honor your contract by exercising your right. If you have an American Option, you can exercise your Option prior to the expiration date. You can only exercise the European Option on the expiration date.

• Let it expire without value:If your Option isn't profitable, you can choose to let it expire without any action. The expiration date is when most Options become worthless.

Each alternative has its own tax rate. It is important to fully understand the taxation rules before you settle the Option.