How is the average price calculated for Options positions?

How is the average price calculated for Options positions?

The average price for Options positions is calculated using the FIFO (First In, First Out) method, but specific adjustments are made for intraday trades. Here's how it works:

  1. Intraday adjustments: If you buy and sell Options within the same trading day, the intraday trades are adjusted first. Only after this adjustment is the FIFO method applied to calculate the average price of your remaining positions.

Example:
  1. You hold 10 lots of Options (overnight) bought at ₹50 each.
  2. During the day, you buy 5 more lots at ₹60 each and sell 8 lots at ₹65 each.
  3. First, the 5 lots bought intraday are matched with 5 of the 8 lots sold.
Profit: (₹65 - ₹60) × 5 = ₹25.
  1. The remaining 3 lots sold are matched with the oldest lots (from overnight) at ₹50.
Profit: (₹65 - ₹50) × 3 = ₹45.
  1. Remaining position: 7 lots (10 initial - 3 sold) at an average price of ₹50.
  1. Overnight positions: If positions are carried forward overnight and sold later, the FIFO method ensures that the earliest bought contracts are considered sold first. The average price is then recalculated for the remaining contracts.
This process ensures precise cost tracking, profit or loss calculation, and compliance with FIFO standards.

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