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Asked a question 6 months ago

What are the risks involved in shorting extreme OTM at expiry day in BankNifty?

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BankNifty has consistently remained directionless for several months and option writers had sort of gotten into a habit of blindly shorting OTM options of BankNifty during the last hour of expiry day and eating the premiums of the so-called zero-to-hero punters. But the last 3 weeks have clearly shown that their honeymoon is not consistent. BankNifty has made crazy movements in the final 10-15 minutes recovering the losses of the entire day and shooting up by 500 points before anyone can even realise what is happening. Given the rise in freak trades, option writers' accounts may not just get emptied but can also go into negative because the speed at which this chaos occurs is perhaps beyond even the brokers' risk-management system to kick in. 
Even 3rd Nov expiry proved to be a similar disaster for the morning hour shorters because the index remained in a narrow range for hours but it took microseconds for it to fall by 170 points within seconds. If anyone has access to seconds chart they can look at BankNifty at 11:34 approx on 3rd Nov. 

The risk is very nominal in shorting OTM at its expiry as the profits are less. However, you'll need to pay full margin of future contract to sell an option. So there's hardly much benefit of doing that. If you've such margin available handy, you can surely sell multiple lots and get all the premium to your pockets. 

But, if the market reversal happens and the price moves from OTM to ITM, then there's much higher probability of you losing than winning.