How is Option premium calculated when there are multiple trades?
The Options Premium displayed in the Funds tab on Kite represents the total premium received from shorting/writing options. The Available cash column includes this amount. In the case of multiple trades, the option premium value is calculated by adding up the average price of all sell orders placed for the specific contract.
A carried forward long position of 2 lots of HDFCLIFE21JAN700CE was sold the next day. Additionally, there was an intraday trade in the same contract. Thus, four orders have been executed, as displayed below:
The screenshot below displays the Opening balance, Available cash, Used margin, Available margin and Option premium values.
The calculation for the Used Margin can be performed in two ways in this case:
- FIFO (First In, First Out) method:
- The total of 2 carried forward positions sold: 63140 [31350 (1100 * 28.50) + 31790 (1100 * 28.90)]
- Plus, the profit from the intraday trade: 1045 (30.90 - 29.95 * 1100)
- Total: 64185
- Based on the difference between the premium received and the premium paid:
- The sum of all the sell trades (Premium received): 97130 [31350 (1100 * 28.50) + 31790 (1100 * 28.90) + 33990 (1100 * 30.90)]
- Minus the sum of all the buy trades (Premium paid): 32945 (1100 * 29.95)
- The difference represents the used margin: 64185
This is the actual amount credited to the account.
Calculating the Option premium:
- The average sell price of all 3 trades: 29.4333 (97130 / 3300)
- Two lots have been sold: -64753.33 (2200 * 29.4333)
The minus (-) sign displayed in the Used Margin and Option premium indicates the amount credited, not debited.
The buy average displayed on Kite for an open position is calculated based on all the trades conducted during the day for the specific contract (carried forward/intraday) or instrument.