Module 5   Options Theory for Professional TradingChapter 24

Quick note on Physical Settlement

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24.1 – Overview

Until recent times, trading in equity futures and options was cash settled in India. What this means is that upon expiry of the contract, buyers or sellers had to settle their position in cash without having to take delivery of the underlying security. On April 11, 2018, SEBI released a circular making physical delivery of stocks for all stock F&O contracts mandatory in a phased manner. The aim was to curb excessive speculation which would result in too much volatility in individual stocks.

24.2 What is Physical Settlement? 

It means all stock F&O contracts at expiry, are required to be given/taken delivery of the underlying security. From October 2019’s expiry, all stock F&O contracts are compulsorily settled physically. 

Let’s understand this with an example, before the introduction of physical settlement, if you bought only a lot of SBI futures expiring this month, on expiry, the contract will be cash-settled based on the settlement price and you will receive the credit or debit in your trading account. We’ve explained how marked to market settlement works in this chapter. But with the physical settlement, if you don’t close or rollover your position till expiry, you are required to pay the total contract value and you will receive the delivery of shares to your Demat account.

24.3 Why is Physical Settlement enforced?

When the contract is cash-settled, traders only are required to maintain the margin(SPAN +Exposure) for the contract and can lead to short-sellers building up excessive short positions closer to expiry artificially bringing down the price. With the physical settlement, these traders will have to buy the stock from the equity market or borrow on the SLB markets to be able to deliver the stocks to the counterparty. This brings in balance to the price not allowing for price manipulation.

24.4 How are positions settled?

On expiry, various F&O contracts are settled in the following manner

  1. Take Delivery(stocks are delivered to your Demat account)- Long Futures, long ITM Call and short ITM Put
  2. Give Delivery(you are required to deliver the stocks to the exchange)- Short Futures, short ITM Call and long ITM Put. 

Only ITM options will be physically settled, if the option expires OTM, they expire worthlessly and there won’t be any delivery obligation. 

24.5 Netted off positions(subcategory)

If you have multiple positions of the same underlying for the same expiration date and they form a hedge, depending on the direction of the trade, they will be netted off.

1st Leg 2nd Leg
Long Futures Short ITM Call

Long ITM Put

Short Futures Long ITM Call

Short ITM Put

Long ITM Call Long ITM Put

Short ITM Call

Long ITM Put Long ITM Call

Short ITM Put

Short ITM Call Long ITM Call

Short ITM Put

Short ITM Put Short ITM Call

Long ITM Put

For example, if you have an SBI June long futures contract and long ITM Put of strike 200(SBI spot price at Rs 180), the long futures position will lead to a take delivery obligation and the long put option to a given delivery obligation. This will be netted off for your account and there won’t be any physical delivery obligation.

24.6 Margins

When you are trading in the F&O segment, for futures and short options, you will require to maintain only the margin amount in your account, for long options, just the premium required to buy. However, this changes with the physical settlement mechanism, where you are required to bring in 100% of the contract value to take delivery of the contract or bring in stocks to give delivery(depending on the direction of your trade). Brokers introduce additional margins when such positions get closer to expiry. 

You can read on Zerodha’s physical settlement policy here.

610 comments

  1. Yuvraj says:

    Hello sir,

    If I don’t hold any shares in my account and can I sell put options in order to buy at lower price?

    Regards,
    Yuvraj

  2. Nitish Kumar says:

    Hi sir.
    in order to not get in a position to become liable for physical delivery one should square off the position latest by the 1st half of the expiry ? i trade mostly through covered call in nifty companies and premium decay mostly happen on the last two days very fastly.
    Your insight on this point sir.

    • Karthik Rangappa says:

      You can keep the position open till the first Monday of the expiry week, Nithish. From the first Monday, the margins go up because of the physical delivery.

  3. Srikanth K V says:

    Hi Karthik,

    I am a newbie to options,
    1)I would like to know what is the starting day of the new option(call/put) .
    Example : I could see INFYCEXXXX EXPIRING ON 30TH AUG (on which day it was it added to option chain).

    2) physical settelement is enforced on when trader failed to squareoff his position before the expiry of the contract(thrusday/last thursday), please clarify the same.

    • Karthik Rangappa says:

      The Aug contract will be introduced at the beginning of May. In June, May contract would cease to exist and Sept would be introduced.

  4. Dalip Vachani says:

    Hi Sir,
    I am new to options trade. Suppose I sell call option of SBI with a strike price of Rs. 200/- and I don’t square off the position.If the option is in the money on expiry date July 30, 2020 and SBI stock closes at Rs. 210/- will I have to give delivery of 3000 shares of SBI or intrinsic value of Rs. 10(210-200)*3000= 30000/- will be debited to my account.

  5. HITENDRA PANDYA says:

    1.If I keep sell position for CE/PE For Index till expiry, so there is also margin will be increase from last week of monday Or this is applicable only for Stocks
    2..If I keep sell position for CE/PE For Stock till expiry, so there is how much margin will be increase from last week of monday i.e.MON/TUE/WED

  6. Sriram Ramanathan says:

    Question 1
    I have placed a Long call on Nifty Jul 11000 CE by paying a premium of 110 per lot (75). 8250 has been deducted as premium.
    On 30th July, Nifty closes at 11300 and I let my option to expire ITM. With cash settlement earlier, without me doing anything, I think I would be getting 22,500 (300*75) in my account. With this new mandate of physical settlement, do I have to still buy the 75 shares @ 11000 per share, which means I have to additionally pay 8,16,750 (11000*75-8250)? Apologies if I have got this completely wrong.

    So, can this also raise to a defaulting scenario?

    Thanks
    Sri

  7. Sriram Ramanathan says:

    Thank you Karthik. Good. So, there is no change if i want to trade only on the indices. Everything still remains the same.
    But the point about paying 8,00,000+ amount is still then good if instead of NIFTY, if it was some stock. Is that right then?

    Thanks
    Sri

  8. Sriram Ramanathan says:

    Okay Karthik, I will share the context better. Disclaimer – I havent started doing options trading, but planning on trying after going through your excellent modules. So, some of my terms usage might not be 100% correct, as I am still learning

    Question 1

    I have placed a Long call on Divis Jul 2300 CE by paying a premium of 42.60 per lot (400). 17040 has been deducted as premium.
    On 30th July, Divis closes at 2400 and I let my option to expire ITM. With cash settlement earlier, without me doing anything, I think I would be getting 40,000 (100*400) in my account. With this new mandate of physical settlement, do I have to still buy the 400 shares @ 2300 per share, which means I have to additionally pay 9,02,960 (2300*400-17040) and get it delivered?
    Apologies if I have got this completely wrong.

    Can this also then raise to a defaulting scenario?

    Thanks
    Sri

    • Karthik Rangappa says:

      Ah yes, the closer you move to expiry, the margin requirement or stock requirement goes up, which means to say that you need to have the necessary funds/stocks to hold to expiry. Else if you don’t want to get into that, then it is better to close before expiry.

  9. Sriram Ramanathan says:

    Question 2

    Are you seeing less volumes of Options trades after this physical settlement mandate. I would assume so, with so many changes, delivery charges, STT etc., Is it the case in reality? If not, i would like to know the reason for similar volumes being traded. What am i missing to understand.

    Thanks
    Sri

    • Karthik Rangappa says:

      Not really, the bulk of the action is anyone on Nifty and Bank Nifty. So there is no reduction in volume as such. But yes you are right, a single stock option is not as vibrant as the index option.

  10. Dr Rahul M says:

    Suppose i have sold a put option for icicibank aug 300PE at R6. Should i do something manually at the end of expiry? If icici stock price goes below 300,is it enough that i maintain money (415000) in my account and the shares delivery will be done? Experts please answer. Am new to this

    • Karthik Rangappa says:

      Yes, you just need to ensure that you have sufficient margin in the system to take delivery of the shares.

  11. BSRANA says:

    I am new in the options world. Have zerodha account. I am not clear as to what is reqired to be done with regard to option trading in stocks
    Suppose i have a l Lot of HDFC @1798 in my portfoilo. I sell a call of 1850 CE @46.
    my question(1) can my holdings be treated as margin. if yes ,then how? How will physical settlement take place if
    (2) stock price remains at or falls below 1850. i wil sit on profit. (3) between 1850 to 1896 and my position in partial profit or zero profit at break even point.
    (3) Stock price goes above 1896 and closes say at 1910 making Loss.
    How does the physical settlement take place . Will i have to arrange for additional funds. Buyng or selling security physically will entail STTetc making these strategies loss making ??. Do not mind if i have raised some irrelevent querries due to knowledge gaps.

    • Karthik Rangappa says:

      1) Yes, in case of holdings, the stocks will suffice. But this is not a replacement for margins.
      2) Yes, below 1850, you get to retain the entire premium received
      3) That’s right
      4) You will have to give stock, which you already have in your DEMAT. Yes, STT will be applicable to both buy and sell @ 0.1%.

  12. Jyoti says:

    Hi sir,
    In physical settlement where there is obligation to give the delivery of the stock if i do not hold those stocks in my demat account how can i give the delivery ? because for CNC trades i cannot short shares right ? i am little confused here please clarify.
    Thank you

  13. Debu says:

    Hello sir,
    I have two queries:
    1) If I short HDFC BANK 900 PE and on expiry the spot price become 880/- then it is ITM. In this case the margin which I have to hold is 900*(550 lot size)= 495000/- ?
    2) If I long HDFC BANK 900 PE and on expiry spot price is 880/- ITM then in this case do I have to hold the same margin as earlier or 880*(550) = 48400/- and the system then credits the 11000/- profit.

  14. Bhupesh Gupta says:

    Hello sir,
    I have 4 queries, Both are related to the expiry of the options and there physical settlements.

    Lets take an Example:- If we have X stock.Current Price 100 rs on 21-7-2020

    Situation 1:- I Buy a Call @ 100 for this Stock, and on expiry it goes to 110 then how I will get delivery
    Question a.) How will i get delivery, is it at 100 Rs. or 110 Rs.?
    Question b.) will i get this Stock in my Demat account and then i need to sell it in the Market whenever i want or, it will be automatically Settlle n give me profit?

    Situation 2 :- I Sell a Call @ 100, and Again Stock goes to 110 on expiry.
    Question c.) how Physically i can give delivery to Buyer of the call. If Manual then how? if Automatic then how?
    Question d.) If I already have this Shares in my Demat account , then how can i tell Zerodha to give my Shares of Demat (Old holding of the Same X Stock)?

    Situation 3:- If i Sell a Put @ 100 and Stock goes to 90 rs. on expiry
    Question e.) At what price i will get stock @ 100 or 90?
    Question f.) Will i get stock Automatically and , Can i Sell it whenever i want?

    Situation 4:- If i Buy a Put @ 100 and Stock goes to 90 rs. on expiry
    Question g.) how will i sell @ 100 to seller or its automatic.
    Question h.) if i sell it manually then how to do it so to book profit or anything else if i am wrong?

    Thanks a lot in advance…
    User of Zerodha

    • 1. a. If you maintain the margins required, you will receive the shares in your demat account for Rs 100 a share(strike price). Your buy average will be Rs 100 + Premium paid to buy the call option.
      b. Yes, it will be delivered to your demat account. You are free to hold it or sell it whenever you like.

      2. c & d. If you have the stock in your demat account, the shares will be automatically debited and settled to the exchange. If you don’t hold these shares, it will go to auction, where us(Zerodha) will buy the share for you and deliver to the exchange(auction penalty will apply).

      3. e. You will get the stock at 100(Strike price). Your buy average will be 100 – premium you sold the contract at.
      f. Yes, same as point 1. b.

      4 g & h. Same process as point 2 c & d.

  15. SUMIT says:

    My query is as follows
    I am holding 550 (lot equivalent) shares of HDFC BANK. I decide to sell a CALL of Rs. 1000/-
    1. TWO DAYS BEFORE THE EXPIRY- CMP is 1050/- What will be the approximate margin required?

    2. ON THE DAY OF EXPIRY- CMP is Rs.1100/- Do i need to provide (1100 * 550lots size = Rs.605,000) as margin ? If yes, How do i reduce the Margin knowing that I am already holding the shares in my Demat account and intend to give the delivery of the same?

    3. For the above what is the time frame i have to PROVIDE the margin? End of the day? Start of the day?

    4.Under what circumstances does Zerodha square off positions for insufficient margin? Any penalty? etc

  16. Varun Agrawal says:

    Hello Karthik,

    I just need your small advice based on one of my observations. Hope you don’t mind.

    I noticed if I had sold a deep OTM 2300 strike for Reliance on Friday afternoon for a premium of 15.55, because of theta decay, it would become 5.1 on Monday morning according to the BS calculator. If nothing changes and I sell at exactly 9:15 AM, I will get 3x returns. I noticed the same is true for many other stocks too like MSFL which has been in sideways channel, the whole month.

    The only thing against me is pre-market changes and volatility. According to the same calculator, it would require 3.2% of pre-market changes or a 25% increase in IV for my position to go in the red. Let’s suppose 3.2% is unlikely.

    My question is what are you general observation towards IV in the expiry week for options? Does it usually shoots up or down?

    Many Thanks.

    • Karthik Rangappa says:

      In an ideal world yes, all else equal theta kicks in and you get to make the decay. However, in reality this hardly happens and there in influences working on the stock prices all of which manifest in different forms – Delta, vega, gamma etc. They all have their own impact on premium and therefore the theta decay concept is hard to monetize.

  17. Nikhil says:

    Hi Karthik ,
    Would be great if you could help understand concept of physical settlement & Covered Call in the following scenarios ( let’s assume i had bought Reliance Call option ATM @ 1800 ) :- 1. Taking Stock delivery through options contract by letting a Call option expire in the money – When I browsed online I couldnt find any site which actually advised on taking stock delivery due to high STT. So is there a scenario where you are deep in the money and when it would make sense to take delivery if you have a long term view on the stock and would like to own the stock? Like Reliance in this example. Or its generally better to square off the option & may be buy in cash market for long term.
    2. Covered call – With the deep in the money call that I was holding would it have made sense to Sell a higher Call option (2100) to make more money as I didnt think the price would go below my Call option strike price and let both the options expire. Or it is generally better to square of the call option and take the profit?Assuming a) Reliance at expiry above 2100 – both options would have expired ITM & cancelled against each other to give profit without needing physical settlement ( also avoiding higher margin for short CE)? b) if price were to settle between 1800 to 2100 on expiry day – I could square of my 1800 long if I wanted to avoid settlement & let the 2100 sell call expire to get the premium?
    3. Also what is your view on this dynamic covered option strategy in scenarios where you had bought a CE/PE which is in the money (instead of just squaring the long option) and you are of strong view based on technical/fundamental analysis that the stock price is going to remain in a range and not going to cross your ITM CE/PE till expiry (or even if it does you could square of the long position & hold the short position till expiry)? Like in this example.

    Thanks for your response.

    • Karthik Rangappa says:

      1) You can take physical delivery when you have a significant price advantage. In this, you’d have paid quite a bit for 1800CE since its deep ITM, so unless RIL goes way higher wherein the premium you’ve paid is compensated plus you have an advantage over the share price, it does not make sense to take physical delivery. I’d avoid buying shares via this approach (unless the option I buy turns deep ITM). In other words, after I buy the option the stock has to rally 10 or 15% more.
      2) This is not a covered call. In a covered call, you have RIL in DEMAT, and you sell a CE against this. What you have described is a bull call spread – https://zerodha.com/varsity/chapter/bull-call-spread/
      3) I prefer spreads over a regular naked position. Also, if the view is directionally strong, you are better off with futures, right?

  18. Vinodkumar Kasandaria says:

    Can I request you sir about call and put option ?
    As still I have to be member of Zerodha institution .

  19. kedar (KD) says:

    Hi Karthik,
    Thank You so much for your invaluable suggestion and advice to we new bees in trade world.
    My question is I have taken a 11000 CE (102.2 Premium), for 30th July expiry. The option is already in ITM now, do i need to settle physically to bag the profit or it will happen automatically after the trading hours on 30th July?

    Also would request you to share a little note on physical settlement piece for both indices & stocks, since so many queries are gearing up. Highlighting the case, on how can some one earn by just selling the option before the expiry, It would be of big help for we robin hood investors.

    Thanks again for your kind help and advice.

    Cheers.

  20. Trilok says:

    I have sold a call and now 2 days before the expiry date i got a message that my margin requirement have reached 133% of the account balance. My trade is currently in profit. I have below questions:

    a) At what point zerodha will square off this position? What would the margin percentange breach for zerodha to square off this trade?

    b) Currently my margins available shows -2.22L. Am i paying any interest/charges to zerodha to get this margin as its negative now.

    • I believe you have a stock options position. Answering below-
      a. Zerodha can square-off the position anytime on Wednesdsay and Thursday of the expiry week once you have breached 100%.
      b. Yes, interest at 0.05% per day will be charged for the negative balance in the account.

  21. Selva says:

    It read this very long ago that a zerodha trader earned lakhs by trading minutes before expiry but ended up defaulting as he has to pay much more than that as STT, atlast zerodha payed the penalty to the exchange. Does that mean we should never forget to close the contract before expiry. Kinda scary 😨

  22. sourav says:

    i have sold a put option of HINDUNILVR 2000PE AUG , my query is now zerodha has taken margin of approx 85000 and suppose till the expiry my trade becomes in the money and i wish to take physical delivery so how much margin i have to maintain 2000*300=600000-85000 which comes to 515000, or 600000 excluding the margin of rs 85000 which is paid by me to zerodha.

    and could you explain the increase of margin requirement on wed and thursday

  23. Gaurav Kumar says:

    Hii Karthik,
    I have 2 queries if you don’t mind.

    1) Does physical settlement concepts work in the strategy like Iron condor.
    Suppose I made Iron condor on SBI in the 1st day of expiry Week. Do I need to take the delivery of stock in this case?

    2) Suppose I sold SBI 280PE @ Rs 3 when spot price is 300 and it expires above 300 . In this case I grabbed all the premium. Do I need to take delivery as it expires OTM.

    • Karthik Rangappa says:

      1) Any stock option that goes to ITM results in physical delivery, irrespective of the strategy you use
      2) Nope, you can square off before expiry

  24. Sharan says:

    Great work on new outlook for Varsity, Karthik. Switching between the chapters of the same module is now very easy.
    But I believe there is a bug. On a standard Full HD display (1080*1920) on a chrome window, only chapters upto number 19 are displayed on the left hand side. To access chapters beyond 19, we again need to scroll down to the very end of the currently opened chapter, thereby defeating the entire purpose of having the module’s index on the left hand side.
    Please make the Index scrollable, if we keep our mouse pointer over it on the left hand side of the page (Just like how Kite’s Marketwatch is scrollable)

    Regards

  25. Utpal. says:

    Suppose I hold a short position in a put option with strike price at 490. If the expiry week begins with the spot price at 500, that means it is still out of the money, will I be subjected to additional margin requirement??

    • Karthik Rangappa says:

      Yes, if you have an open position in the market and going into expiry, then you will be required to bring in the physical deliver margin.

  26. Rajesh says:

    In case of Long positions in Options, There will be a physical delivery margin charged for all In-the-money(ITM) long options.

    My question is for eg ONGC is trading at 82 today in Aug series and today is Friday and next Thursday is expiry i.e 27th aug.

    If I am holding 80CE since past two weeks, when will I have to pay margin on this, will it be applicable from today i.e Friday EOD or it will apply two days before expiry i.e next Wed Thurs? Its too confusing neither zerodha is explaining properly nor any other broker.

    • Karthik Rangappa says:

      Rajesh, the delivery margins start to kick in from the Monday of the last week i.e. 24th Aug, for the August series. The margins start with a smaller % and shoots up closer to Wednesday start.

  27. Aaryan says:

    Hi Karthik sir,

    Please walk me through this (live trade example). This was my very first trade in options.

    Last Thursday, for bank nifty(on expiry), I shorted CE and PE around 200 points from ATM price. (Strategy was to earn the premium by EOD cuz of time decay).

    Market was completely range bound(swing in the market was barely 100pts) and hence I made my profit but at one instance I was confused.

    At one point when the market started falling my PE premium went in -ve. The thing which tricked me here is I had shorted at a distance 200point and the CMP didn’t even came close to it. As per the basics, if the CMP crosses the Strike price we start to incure losses.

    Will you please help me to understand this scenario?

    • Karthik Rangappa says:

      Aaryan, this is because, as the market falls, volatility increases and with the increase in vol, option premium also increases..this is common across both PE and CE. PE gains if the fall in market is swift and sharp (because the premium gains from the fall wont be enough to compensate the volatility effect).

  28. Prakash says:

    Iam new to Options trade, i had bought Exide CE Aug 2020 series on 20th August 2020, but i it was auto squared off today (24th Aug 20202) at 3pm. Iam at a loss. Is it a normal case , as i was not informed before the square off was executed automatically. Request your advice on this, as iam bit confused on this.

  29. Sravan Kumar says:

    Hi Karthik sir,

    I am new to options trade. I have a query regarding physical delivery.
    I bought 2 lots of SBI Call option with strike price 197.5 and also sold 2 lots of SBI Call option with strike price 205.
    If the SBI price goes above 205(Lets say 208), will i be getting 7.5*2*3000 in my account?
    If the SBI price stays between 197.5 and 205 (Lets say 203), will i be mandated to buy the shares at 197.5 price or will it still be netted off and i will get (203-197.5) * 2 * 3000 ?

    Regards,
    Sravan

    • Karthik Rangappa says:

      1. Net off – No physical delivery.
      2. 197.5 CE will be physically settled, other will expire worthless. So yes, you will receive the shares in his DEMAT

  30. Rahul Singh says:

    in the gambling analogy, when you sell call or put you are the house and the buyer of the put or call is the gambler…and house mostly wins. is that the right way to think and make enough safety spread of selling call and put to collect the premium. pls let me know what you feel.

  31. Vishal Sharma says:

    Hi Karthik,
    I’m a beginner and I’ll be grateful if you can answer my queries given below. Please note that all my queries are regarding options trading in Nifty.
    1. Is there a fixed value of the percentage(SPAN+Exposure) that is used to calculate the initial margin required? If it’s not fixed, what number should I use to calculate a decent approximate value(in case I don’t want to be precise)?

    2. I’m a bit confused about the margin requirement for NIFTY option seller. Once I’ve opened by selling(by having the required initial margin), can the margin required change(increase) with the changing premium of the option? Will it be calculated daily? And if I’m holding the option till expiry, do I need to have the full margin(SPAN+exposure), each day or is it okay if I just have the SPAN margin?

    3. Can it happen that I bought an option and I’m in profit but I’m unable to square off(sell) my position?

    4. Can I pledge the shares of stocks/ETFs that I’m holding to fulfill the margin required in NIFTY option selling? What happens when the margin requirement increases before the expiry? Do I need to pledge some more shares? Will some shares be squared off by Zerodha?

    5. I noticed that buying at certain strike prices of NIFTY is sometimes not allowed however I can sell at those strike prices. I wanted to know if there will be a problem if I will try to close my open position(short). Since I will need to buy to close but buying is not allowed I got confused.

    6. Is the margin requirement for option selling calculated on the basis of previous day’s closing price or the latest LTP of that strike price?

    7. In order to calculate the brokerage/charges incurred while holding a buy/sell option till expiry, what do I need to enter at sell-price/buy-price in the calculator?

  32. dhanraj says:

    CAN YOU TRADE OPTIONS INTRADAY AND HOW TO cllose your position

  33. Ravi says:

    Sir.. what if I trade in index like bank nifty and nifty….
    Case 1. – what if I buy 2 lot of nifty/banknifty and didn’t sell on expiry so how can I buy index physically

    Case 2. – what if I sell 2 lot of Nifty/banknifty and didn’t buy or didn’t square off my position on expiry…..
    So do I again need to pay anything

  34. Sandeep says:

    Hello team,

    I have a long futures of Tata motors lots zise 5700 at 155

    I have sufficient funds to take delivery for the same

    Suppose on expiry Tata motors is settled at 135 so there will an loss for me for rs 20 but as I said I am ready to tak physical delivery as my view is that stock will move in few other trading session

    So after physical settlements my demat acccunt will get credit for 5700 share at what rates at 135 or at 155

  35. mithun says:

    Hi sir,
    How can we exercise an option?

    • Does option contract gets automatically exercised, when we hold an option (which has intrinsic value) till the expiry and without squaring it off.

    • Does it attract any brokerage? (kinda like in cash segment, if we don’t square-off our MIS positions)

    • Karthik Rangappa says:

      1) Thats right, provided the options are ITM by expiry
      2) MIS positions have to be square off during the day, else it will be squared off by the system. Yes, the brokerage will be charged.

  36. Adi420 says:

    I have a bullish view in TATA steel so I deployed put spread in current month expiration I sold ATM option and bought OTM option. 1)Now let’s assume that TATA steel stock goes opposite of my direction and then both the options goes ITM. Before expiry I just can’t exit the trades because of High BID/ASK spread. Will the physical settlement will happen? Or they will cancel out each other since both are ITM? and it will be cash settled. 2) At what prices will my long option will get executed after expiration? LTP or BID ASK rate? 3) If the OTM option which I bought goes ATM and the ATM option which I shorted goes ITM will the Physical settlement take place of ITM put option which I sold in expiration? 4)If I don’t exit my credit spreads trades in last 2 days will there by any hike in margin requirement?

    • Karthik Rangappa says:

      1) If both the legs are ITM, then it will be offset. Else, the one which is ITM will be physically settled
      2) At the strike price
      3) Same as 1
      4) Yes, as you move towards expiry, margins will increase

  37. Vaibhav says:

    Hi, my query is regarding squaring off the position at expiry Day.
    1. If my position, put or call, are at OTM and are in profit, do I need to square off or system will square off automatically?
    2. Is there any change in profit n loss of my otm position due to squaring off by myself or system?
    Thanks in advance!

  38. Hemeswar Borah says:

    Hi,
    (1)SUPPOSE I HAVE SOLD STOCK OPTION PE @55/- AND REMAIN OTM AND ON EXPIRY DAY PRICE IS SHOWING AS 1/-. BUT COULDN’T CLOSE THE POSITION DUE TO ILLIQUIDITY OR NO SELLER ON EXPIRY DAY. IN THAT CASE SHALL I GET THE PREMIUM (55-1)=54*LOT SIZE ?
    (2) IF STRIKE PRICE BECOME ITM WHAT POSITION SHOULD I TAKE AGAINST MY PUT SHORT TO AVOID PHYSICAL SETTLEMENT ?
    PLZ HELP

  39. Nandi7716 says:

    Hello Sir,
    I have sold HDFC SEP 1750 PE & LT SEP 900 PE. Both are now in the money option. I like to take delivery of any one of them as there is fund shortage. Now my question is, if I do not square off till expiry from any of the above position (as both are CTM option) maintaining the fund to take single delivery then what zerodha will do on expiry?

    • Karthik Rangappa says:

      As we head into the delivery, your margin requirements will go up. In case of insufficient margins, the position will be closed by the risk management team.

  40. Shrichand Bajaj says:

    Hi What will happen when someone is running covered call? Will this be netted off or result into physical delivery? I was running reliance covered call for Sep2020 expiry. My margin has been cut but i have not received the shares

  41. Aditya Joshi says:

    Hi Karthik,
    Enjoyed reading the posts. But I had a question related to physical settlement.

    Suppose I buy & sell call option of the same underlying (but at different strike prices), will it come under netted off position ?
    Ex. Suppose I buy Infosys CE with strike price 1350 at 75 Rs & sell Infosys CE with strike price 1340 at 90 (the values are hypothetical & just taken for example sake, not related to real prices at all). What will happen if expiry spot price is:

    1. less than 1340 (both options out of money) : I’m assuming I won’t have to take/give delivery of Infy for either option & will be able to get the net Rs. 15/share premium.

    2. between 1340 & 1350 say 1348 (only 1 option in the money): can I pay off the 8 Rs/share from the net 15 Rs/share premium I received or do I’ve to give the delivery of Infosys shares (I’m guessing it should be the second way but not sure)?

    3. more than 1350 say 1355(both options in the money): This is where I’m not sure. Since, from 1 option I’ve to take delivery & from another option I’ve to give delivery. Can I just pay off the difference of Rs. 10/share from the net Rs. 15/share premium I received ?

    Thanks,
    Aditya

    • 1. If both options are OTM, no physical delivery.
      2. The short CE 1340 is ITM and will lead to physical delivery. Since it is short calls, you will have to deliver the shares or it will lead to short delivery(auction settlement will follow).
      3. As you explained, there is give delivery for 1340 CE short and take delivery for 1350 CE long, this will be netted off for your account.

  42. Koushal says:

    Dear Karthik,

    Let’s assume I have bought deep ITM options and the price of the option is big ( I know its doesnt matter ), but what happens if there is no buyer. This can be a noob question. meaning I bought the Long Call or Put options, however Since this is ITM and very very low volume, what happens if I dont find a buyer ? What happens to the person who sold the call or Put options ? Can you please throw some light ?

  43. Koushal says:

    Dear karthik, Faisal,

    a. I understand that Nifty options ( index options ) are still settled in cash. Is it true ? if not then how to take delivery of Nifty ? Is it like 75 * 11500 = 8.62lacs ?
    b. In this case, What happens say If I had long Nifty 11500 Put, and Nifty closed at say 6000 for the month. What happens if I dont close my postion and keep it in my account ?
    c. In the 2nd case, what will be my tax implications on
    1. I sell is before the expiry ?
    2. I dont sell is before expiry? Which is the higher tax ?

    Thanks for the great Job, Waiting for your reply.

    • Karthik Rangappa says:

      a) Index is cash-settled
      b) It will be cash-settled
      c) Tax depends on your overall trading activity. Expiry has nothing to do with this.

  44. Aarti says:

    Sir if I do not wish to get into physical settlement hassles, as, one I am a student and do not have a large base to start off with apart from some pocket money and two am a complete newbie to this idea of trading Options. So, I just wanted you to confirm this- if I have an account with Zerodha and a plan to start trading in Options, what is maximum time till which I can exactly hold my long calls/puts(not planning to venture into short calls/puts) in stocks (for indices i understand no delivery is required) before expiry, so that I do not have to bother at all about having a physical delivery.

    Many thanks for all the modules, sir! Truly amazing content and lucid explanation!

    • Karthik Rangappa says:

      You can square off the position anytime before the expiry. Usually, the margin requirements go up the last week of the series, so you may want to plan your trades such a way that you exit before the last week.

  45. JERRY says:

    HI,
    I am an account holder with zerodha, my question is Can i Buy call option of an Equity Stock on the Expiry Week?
    thanks

  46. Ayush Garg says:

    DOES THE MARGINAL AMOUNTS REMAIN SAME FOR THE SAME UNDERLYING IN FUTURE & OPTIONS (SELLER) .LIKE THE LOT SIZE WHICH ALSO REMAIN SAME FOR BOTH

  47. Ayush Garg says:

    Can a writer/seller of options can square off the position after receiving the premium (if yes then in how many days from initiation). Or the options to square off is given only to options buyer.

    Thank You for creating the well simplified , non-motorized , zero fee content for everybody who is genuinely interested in Market

  48. Ashu says:

    If I buy a put and on expiry it becomes ITM, how to exercise it in zerodha? Will it be automatically excercised?

  49. sunil says:

    Hi Karthik,
    I had purchased an call option BankNifty 08 Oct 23000 CE on 7th Oct. I let it expiry on the 8th Oct and Bank Nifty was 23190 at the end of the day. I should get (23190-23000)*25 = 4750 as profit. But my P&L is reporting only 505/- as profit ( difference in premiumX25).
    Can you explain?

  50. SANTANU DEY SARKAR says:

    In f and o intraday the profit willbe credited same day or not?

  51. Aarti says:

    Sir before finally starting to trade i had one last question, if a long CE has been bought then it can always be squared off before the expiry even when the premium is trading at a lower rate than bought for, just to minimise my losses, right?
    Sorry if it’s a very basic question.

    Thanks in advance!

  52. Aarti says:

    Also sir with regards to the doubt asked by sunil on 14oct’20(for some reason am unable to directly Reply there), the P&L should be credited with respect to positive movement ( as spot was clearly rising) in two premiums(premium paid when bought vs. premium received when sold), instead of the difference between strike and spot, right? And the difference in the two premiums could be much smaller (of course charges would have played their role), which could perhaps explain why his P&L got credited with a small amount?

    • Karthik Rangappa says:

      Ah, unable to place this query. If this is about when the credit will happen, then its on T+1 basis. Sorry, if I’m not getting the context.

  53. Aarti says:

    As a sidenote, if one is intending to make profits from changes in the movements of premium then, a moon shot strike price(say, 5strikes way from ATM with 45days to expiry) for long CE, should not matter, right? Because as long as the direction is right the CE should make small profit(given delta of 0.3 and close to 45% IV), is that correct sir?

  54. Raja Rajeshwar says:

    Had a doubt regarding zerodha. I sold an option on 25th sep in 180 premium and bought it back on 16 oct in 160 premium . So I booked a profit of around 2500/- in one lot. After market when I checked executed orders, I saw one order which I bought back the option(for closing my position) and another sell position of one lot again in 187 RS, but this was not done by me but by ADMNSQF was the description. Now I am confused why zerodha had to do that. That position is still open. Pls guide
    The option in this was bajajfinsv 6000 CE

  55. Bala says:

    Hi Sir, I am long on tcs futures and I also have a long put option both for October expiry.. As far as I understand from the post, these positions will hedge each other and I don’t have a physical delivery obligation.. Still I got a mail from zerodha saying I have a long itm put option and I need to take care of the margins.. Even though physical delivery requirement is not there, still margins start going up from next Monday? Kindly clarify.. Thanks in advance..

  56. CHANDRASEKAR A says:

    Today (27.10.2020), I forgot to square off currency before its expiry. What will happen to that and whether it will affect my funds position?

  57. SUSHIL KOTHARI says:

    I have bought a lot of nifty option of November series at 11800 strike today I.e.30 Oct 2020. I understand that it will be settled on next Thursday by squaring up only since this is nifty option. Am I correct,sir

    By when will it be convinient or safe for me to square up the same ? Kindly advise

    i

  58. sandeep mehta says:

    sir, suppose i sell SBIN 200PE and stock closes at 194 on expiry. have i to give delivery @200 or will it be cash settled as it is CTM option.

  59. sandeep mehta says:

    correction sir, i want to ask have i to take the delivery of sbin @200 as i sold sbin 200PE

  60. Dev says:

    This is my first post at Zerodha and first of all, Karthik Sir, Thank you very very much for detailed explanation of in depth explanation of each point. If I see myself just a few months ago, if somebody asks me what do you know about share market, I was saying nothing much, and now if somebody asks me the same question, I can tell much much…! All knowledge is because of you and Zerodha platform.

    I will say that I have understood so many things about options from these modules. Well, said that, I have certain practical queries regarding options. Kindly solve them.
    –> About physical settlement in option contracts
    Sir, as I understand from these modules, I understand that if we allow option ( any option contract except index options which cant be physically settled ) to expire, then physical settlement ( for all ITM options ) will happen.

    My first question is, what I am understanding about physical settlement is correct ? ( Though I have certain queries regarding margin requirements and CTM ITM expiry also but I am not bothered about those things for the sake of this question. I will ask those queries later in respective sections)

    Suppose I already have 300 ( = 1 lot size ) HDFC shares in my demat. Now, I want to do covered call. So, I will sell call @ 2100 ( and by doing that I will get some premium ). Now I know that before expiry anytime I can square off the position ( i.e. buy the call @ same strike price at same expiry ), but let’s say I don’t mind giving delivery of my 300 shares @2100 if option expires ITM ( i.e. at 3:30 PM if HDFC closing price is anything above 2100 ).
    So what I understand is, I will let the option expire and if it expires ITM, I will give delivery of 300 shares which I already have in my demat and by doing that I will receive the fund of ( 300 x 2100 ) – ( some brokerages + some taxes which I will dig into detail later in respective section). In addition I will keep the premium money which I had already received while selling the call.
    [ Why I am asking this question  Actually after reading from these modules, I discussed this (above) strategy with so many of my friends ( approx 20 ), some of them are actively dealing with options in kite app, some of them are not using kite platform but another platform and actively dealing with option contracts on day to day basis. All saying that something is wrong in my understanding. Actually delivery of shares never happen after expiry. We have to square off the position before 3:30 pm by ourselves or else broker team will square off the position before 3:30. ]
    Thnx.

    • Karthik Rangappa says:

      I’m glad you liked the content here on Varsity, Dev 🙂

      Yes, you are right, if you hold a short call option and let it expire ITM, then you will have to give delivery of the share and it will be settled at the strike price. I think your friends are talking about active trading of the option premium wherein there is no need to hold the option to expiry and you are free to sell it anytime you want before the expiry.

  61. Dev says:

    Thank You for your reply Sir 😊
    Got some confidence in my understanding of the subject.

    1 related question I want to ask you regarding the physical delivery of option contract ( I tried to search but nobody has shared any such experience online)

    My que. is : what exactly happens after expiry of option contract ?
    I mean suppose I let the short call expire ITM ( so, on expiry day it has already been 3:30 PM and regular market has closed and I am seeing the closing price of the stock which is now ITM for my strike price ).
    So, now what next ?
    Whether Zerodha people will call me and tell me that now you put sell order for the required quantity of shares ( which are already in my demat as I m doing covered call )
    or they will take the shares from my demat directly
    Or they will make me pledge shares with them beforehand before expiry day ( so if short call expires ITM, they can do the delivery on my behalf )
    What exactly will be the procedure or events ?
    Thanks.

    [ BDW when I was searching, in your profile somewhere I read that you do education seminars in different parts of the country. I wud like to get some more info about that. Is this correct forum to ask or should I ask in any different forum ? ]
    Thanks again 😊

    • Karthik Rangappa says:

      Dev, you don’t have to do anything, the shares will be automatically debited from your account 🙂
      The seminars and workshops are usually at B schools, upon their invite.

  62. Dev says:

    Thanks Sir 👍

  63. Sandeep says:

    Hi, I have a query about using kite platform to trade a spread. I am new to this platform…
    Say I do a spread like : SHORT RELIANCE 2000 PE + LONG RELIANCE 1950 PE.
    Is it possible for me to place the spread as 1 trade ? I could not figure out how… Do I have have to place 2 orders separately ? If so, does sequence of the above two legs matter in computing required margin ?

    Thank you much…

    • Karthik Rangappa says:

      Sandeep, you can use a basket order for, check this -https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/holdings/articles/kite-basket-orders

  64. Sandeep says:

    Hello Karthik ji,

    The text above says “Only ITM options will be physically settled, if the option expires OTM, they expire worthlessly and there won’t be any delivery obligation. ” The table below this text also kind of solidifies the statement.

    I have a query. Suppose I have a spread SHORT RELIANCE 2000 PE + LONG RELIANCE 1950 PE. At expiry, the underlying closes at 1980. With such a spread, does zerodha allow me to exercise my right to sell the underlying at 1950 and net the two legs for me, thus avoiding delivery ?

    Thanks much…

    • Karthik Rangappa says:

      Both the legs should be ITM for net off. In this case 2000PE short is ITM, hence you will be obligated to take delivery.

  65. Sandeep says:

    > Sandeep, you can use a basket order for, check this -https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/holdings/articles/kite-basket-orders

    Got it… Perfect! Thank you again. Good night sir

  66. Madhu says:

    Thanks a billion!!! for sharing such precious knowledge. My question is how does Zerodha makes the settlement when i do covered call strategy and the call option which i sold becomes ITM?. can you please explain me with example

    • Karthik Rangappa says:

      In this case, you have sold the ITM CE option, hence you are obligated to give delivery of shares. The same will be debited from your account and settled at the strike price.

  67. Dev says:

    Hello Karthik Sir.
    Query related to margin in covered call.
    I have read physical settlement policy of Zerodha.
    Now, I am getting confused regarding following things.
    1) Whether we have to see daily margin requirement (M 2 M or similar thing ) after selling the call ?
    2) If I tell Zerodha that I am doing covered call ( so I have physical quantities of shares in my demat already and so if physical delivery obligation occurs at all, I am ready to give physical delivery and there is no chance of default) , whether Zerodha allows me to sell call without initial margin requirement ? (or) whether Zerodha allows me to continue the position for last 2 days of expiry week also without increasing margin requirement to the double of initial margin ?
    Thanks :-).

  68. Dev says:

    Thank You for your reply Sir.
    I assumed same thing & understand that.
    1 more related query ( actually I went through many articles but cud not find that)
    1) what is exact policy of Zerodha regarding daily margin settlement. For instance if any perticular day if initial ( span + exposure ) margin is short and let say I donot have enough balance in my Zerodha account, then, whether Zerodha RMS team will contact me ( by call or any other means) and tell me to top up the Zerodha account ?
    By what time I should topup the account after getting the notice ?
    2) Sir, while I was going through various articles and Q&A topics, somewhere I read that in providing margin, we cant rely completely on collateral margin ( pledged shares and mutual funds) , we have to give cash margin also. I am not able to find that article again. What is exact Zerodha policy regarding that ? How much of the required margin from the pledged shares and mutual fund will be considered by Zerodha ?
    Thanks 🙂

  69. Honey Singh says:

    Hi Karthik sir,

    If I have one lot of Call option of a stock of Nov month and the expiry is on 26th. Then if I square off the position on 26th before 3:20 pm (on expiry date), do I still need to undergo physical settlement process or will it be treated as a transaction being executed on a normal day.

    Pls advice as expiry is 2 days to go and I don’t have enough funds for physical settlement.

  70. Karan Singh says:

    Sir, why all strike prices ain’t showing in Kite app. For example in option chain I can see ICICI bank strike price from 250-580, but in kite app can see till 490CE.

    Thank you in advance.

  71. Karan Singh says:

    Yes sir, I’m sure. Same happens when I use Kite platform on my laptop. I can also share the screenshot.

  72. Vishal says:

    What is the best time to close the open positions (iron condor) for Bank nifty on weekly expiry?

  73. Shivam says:

    Hello,
    For say, I’ve 3000 shares (equal to f&o lot size) in my holding at avg cost of 200 rs. For hedging purpose I sold a call option of 210 at the premium of 2 rs. On the expiry it the CMP of SBI is 220 and I chose to settle it by delivering all shares.
    Please explain me the P&L calculation for this scenario.

  74. Madhura Tengshe says:

    Hi!
    If I have shorted call and put options for the same underlying at different strikes, both ITM, will they cancel each other out on expiry?

    • Karthik Rangappa says:

      Both can not be ITM at the time of expiry, right? Imagine you write 400CE and 400PE, and at expiry, it is at 410, then 400PE will be OTM or if its 390, then 400CE will be OTM.

  75. Arunkumar says:

    can i buy and sell single Call option in a single day,
    if so, how much of a margin i need to buy and sell same call option…

  76. Avinash says:

    Sir
    I have buy Infosys 1160 CE
    And sell infy 1200 CE
    If infy closed on expiry at 1180 then whether there is required physical delivery?

  77. Puneet Bhardwaj says:

    In order to avoid taking delivery of a call option is it better to buy put option of same contract of same quantity during expiry week??

    • Karthik Rangappa says:

      But that is no guarantee to no physical delivery. Both the contracts should be ITM to nullify physical delivery. So something like long CE+short fut maybe better.

  78. Rajendra says:

    Dear Sir, I don’t find suitable words to thank you and Team Zerodha for the wonderful work you’ve taken up and the degree of sincerity and excellence you are pouring in it.
    My question may look strange but I wonder how standing Short Call/Long Put option of index delivered, for example Nifty 50, or is that cash- settled on expiry (by deducting difference amount from account)?

  79. Rajendra says:

    Dear Sir,
    Regarding my question, just a few minutes ago…Went through the article once more. Its made clear that all unsettled/rolled over stock F&O contracts are to be settled with delivery on expiry, but no mention of Index options. So does is imply that related SEBI circular doesn’t apply to index contracts and they’re still cash-settled?

  80. Narayanan nambudiri says:

    As far as I understand for index options, no physical settlement will be there. Am I right in my understanding?

  81. Pradeep says:

    Suppose I buy call option and it becomes ITM.. on expiry if I didn’t squer off the position.. It’s compulsion to take delivery..?? What happens if i didn’t take delivery due to shortage of funds…

    • Karthik Rangappa says:

      While you approach the delivery, margin increases, if you don’t park the margin funds, then the position will be squared off.

  82. Nik says:

    1) If I buy future and had span + exposure = 140000
    How much margin will require for physical delivery

    2)if I buy put option which expires in the money
    How much margin will require for physical delivery

    3) if I buy future and put of same stock and put is in the money and future in loss
    How much margin will require for both for physical delivery

  83. RAKESH says:

    sir,
    i have 1 nalco jan future at 47 and shorted 1 lot 49 CE option at 1.95 now suppose if in jan expiry nalco closes at 50 then how the settlement margin will work .
    1) at 50 NALCO 49CE WILL BE ITM AND IN NALCO JAN FUTURE/
    I MAY HAVE PROFIT OF AROUND 3RS PER LOT AND LOSS OF 1 RS PER LOT IN THIS CASE SHOULD I quare of my position before expiry.
    2) if i am taking delivery how much money will be needed for taking delivery . how much money needed to let both expire.

    thanks
    zerodha user

  84. AS Rao says:

    I have demat shares in the account with you. Based on those shares, I want to do shorting in options. What is the margin required? Do I need to have cash in the account before settlement or can I use my demat shares as margin?

  85. Pawan Handa says:

    Hi

    1) I have a query. If I sell a call against the stock in my Dmat. For example I have 250 stock of Reliance in my DMAT and if I want to sell a call of a higher strike then do I need to maintain extra margin in additional to stocks in my dmat .

    2) My second query is..for example if I have bought Reliance for say Rs 1900 and I sell a call for 1950 with a view to give delivery of the stock on expiry at Rs.1950 and on expiry stock is trading at Rs.1960 and I do not square/cover the call rather I plan to give delivery at Rs 1950. In such case is there any additional charges from Zerodha and Do I need to square the call mandatorily in such case by buying the call back ?

    Thanks
    Pawan

  86. Pawan Handa says:

    Thanks for our prompt Reply Karthik. I have some follow-up query as below. Can you please help me to understand on the following :-

    1) In case I sell a Infy put option for Rs 1200 PE strike by collecting Rs 15 as a premium and spot price is say Rs 1350.Now lets us assume that on the expiry Infy spot price is trading at say Rs 1000/ and PE Option sold is now trading at say Rs 50 premium. I do not square my sold put option rather I want to take delivery of Infy at Rs 1200 and want to exercise this . In such case am I also liable for difference in Premium to be paid i.e. ( Rs 50-15=Rs 35 which will be 600X35=Rs 21000) what will be my financial liability towards my broker. My understanding is since I have sold PE for strike at Rs 1200 therefore I am liable to take delivery of the Infy 600 share lot @ Rs 1200 irrespective of the fact that spot price in the market is trading at Rs 1000/- . So my effective cost of buying lot will be Rs 1200 minus Rs 15 (I.e. premium collected )=Rs 1185 and I am not responsible for premium difference to be paid. Is that a correct understanding ?

  87. Pawan Handa says:

    Hi Karthik Ji

    I guess my above query is incorrect. I am just reproducing my query for the following scenario:-

    1) I sold Infy 1280 PE for Jan Expiry by collecting 10 Rs Premium.
    2) On Expiry Stock is trading at 1200.So On expiry value of the PE which I sold for Rs 10 will expire at the intrinsic value of Rs 80 ( 1280-1200).
    3) I am happy to receive the delivery of the stock at my contracted strike price of Rs 1280.
    4) In above situation what is my obligation at expiry if I let the Option expire as ITM.

    My understanding is I will need to pay 600 ( Infy lot size) X 1280=768000 plus any brokerage plus STT on intrinsic value . Is this understanding correct ? What will happen to the intrinsic value of the PE I sold. Do I need to pay intrinsic value as well ?
    Your early reply is highly appreciated.
    Thanks
    Pawan

    • Karthik Rangappa says:

      That’s right, Pawan. Your obligation is to receive 600*1280 worth of Infy shares. No need to pay for the intrinsic value, the option is anyway getting settled right?

  88. R Vijaya Lakshmi says:

    I am very much new to Options. Please clarify to me, Suppose I have sold Nifty Call and Put of different srike prices in OTM and I do not squire off them on expiry date, what are the charges and credits to me , if Nifty closing price is in ITM, ATM , OTM? Please explain in detail.
    2)On the option contracts expiry date, I think margin requirements will come down drastically, because of steel fall of premiums on that day. Am I right?
    3)Just like intraday squiring of timings, by what time I should squire off my options positions on expiry dates?

  89. Vaibhav dumbre says:

    Sir my questions about physical settlement
    1 if I have short deep ITM call , and i have short deep ITM put , does it Net off , if yes how profit or loss calculated

    2 if i have ITM call but just after it becomes itm i buy one lot of future of same stock does it Net off if yes how profit calculated

    3 in random assignment of short CTM.
    a) what happens if any of position in situation 1 above becomes CTM and get assigned

    b) what happens if call in covered call position becomes CTM ?

    Ps: i request you to please provide detailed article about physical settlement of every possible situation , net off etc it’s necessary as there is lots of confusion around this physical settlement

    • Karthik Rangappa says:

      1.Yes, these will net off. There will be a notional sell trade for the ITM call and a buy trade for the ITM Put. Both of these will be at the expiry day settlement price. Essentially get treated like a cash settlement.
      2. If you have calls that become ITM(take delivery), the net off trade will be a short futures(give delivery). The net off will be similar to the one explained in point 1.
      3. a. In point 1, if both positions are deep ITM, both will get assigned and get netted off. If the positions are CTM(slightly ITM), there is a possibility of 1 getting assigned and the other expires worthless., in this case, you will have to take/give delivery depending on the position that got assigned.
      b. Naturally, for a covered call, you will have stocks as underlying, so you will have a give delivery settlement, which you can deliver from your holdings.

  90. Vaibhav dumbre says:

    Sir , can you explain with example for situation in point 1 above ( short ITM call and short ITM put)

  91. Vikash says:

    I have many stock call. How take delivery positive?

  92. vamshi says:

    Hi Team,
    Suppose if buy a call option of INFY JAN 1300 CE at premium of 10Rs. If I was unable to square off option before expiry date and INFY was trading at 1400 at expiry date. So what will happen if do not have enough margin in account to buy the one lot of shares(600) at the end of expiry.

  93. Raju says:

    Sir If my long pe is at otm and unable to sell the pe then my loss is only for the purchased price or more. Please clarify.

  94. Shivam says:

    I have SBIN JAN PE 235 two lots i.e 6000 total as of now it is 0.05 and I’m unable to square off. What I can do ? also do I have to face more loss aprat from the amount I invested in two lots?

  95. eswar says:

    when i can see cash secured put physically setttled shares in my holdings?

    2 days over after expiry day, but still shares not shown in holdings of my demat account.

  96. Vipin says:

    Hi,
    Last month I sold call option of ITC of strike price of 230 the current price was trading @ 210 on Monday last week of expiry. So, I guess this is Out of the Money at that point of time. Still, I received message for increased margin amount.
    Also, lets say if don’t expire my position and current price closes @220 which is below the strike price then also I need to give physical delivery of the shares.
    P:S – I don’t hold any shares of ITC in my demat account.

    • Karthik Rangappa says:

      Yes that is OTM. However, as we head to the expiry week, irrespective of the moneyness of the option, the margins will increase and if you wish to hold these options then you will have to have enough margins. Yes, no physical delivery for OTM options.

  97. Akash kumar says:

    Sir if I sell put of a share at 100 strike price and current price is 150.
    1. What kind of settlement will be done if current price comes to 90. Do I get the delivery of shares at 100 or 90? ( if I maintain the margin)
    2. What should I do to take the delivery or it will take place at automated basis? But, if so then again at what price settlement will be done 100 ( strike price) or 90 ( current market price)

    • Karthik Rangappa says:

      1) If the underlying price is 90, then 100 PE is in the money. Since you’ve sold, you will have to take delivery of these shares at 100.
      2) It will be automated, so you will have to just ensure sufficient margins are maintained.

  98. RAKESH THALOR says:

    if i have shares in cash say 3 lots asian paints i.e 900 shares and i short 2400 CE option
    what will happen if Asian paints goes to 2600n expiry to my 2400 CE option can i let it expire as i have equal amount of shares or i will be forced to buy more as 2400 wwill be in the money by 200 points??

    • Karthik Rangappa says:

      If you short 2400CE and the spot price goes to 2600, then the 2400CE will expire ITM which means you will have to give delivery of the shares at 2400.

  99. RAKESH THALOR says:

    but as i already have shares in cash so they will be sold off automatically i.e netted off

  100. Mukesh says:

    If F&O trading goes for physical settlement then what happens to premium amount paid in option buying. Is premium amount adjusted in total cost or it get lost ? Please explain.

  101. Chandrakanth D says:

    Hello Sir,
    If I buy a put/ call option of stock and if I couldn’t close it because of illiquidity, what will happen?

  102. LIONEL says:

    Sir,
    1. Can we place a buy order for (CE or PE ); at a trigger price higher then current LTP, using order type S.L ORDER (with TRIGGER PRICE and PRICE both greater then the current LTP ) ?
    2. And if we are able to do so; when and where will the order be executed . I mean to ask whether the order gets executed after the price has moved above the trigger price; or will the order be executed at the current LTP as it is a better price to buy ( similar to what happens if we place a buy limit order with trigger higher then the LTP ; it gets executed at current LTP )?
    3. And as market orders are not allowed for stock options on zerodha; so if we want to exit the position at the market price (we will have to place a limit sell order with trigger price less then the LTP for exiting a long position ); ( we will have to place a limit buy order with trigger price higher then the LTP for exiting a short position ) am i correct ?
    4. If we place a basket order and if it gets executed successfully; then are this positions showed separately in our position or is the combined position of the basket showed ? and can we exit our positions (executed as basket order ) separately or is it necessary to exit all the positions executed by basket at once ?

    • 1. Yes, you can place an SL order.
      2. Your order will sit in the exchange’s passive orderbook until the trigger price is hit. Once the trigger price is hit, your limit order is released to the active(normal) orderbook.
      For example, an option contract has an LTP of 10 and you placed a trigger at 12 with a limit price of 12.5. Once the contract hits 12, your limit order gets sent at 12.5. Depending on the availability of a seller, your order will get executed at 12.5 or lower.
      3. Correct.
      4. While the basket executes as a whole, positions will be shown separately. You can exit them individually or create a basket for the exit too.

  103. Aman says:

    If i buy deep ITM Call and Put both of Nifty options, and if i don’t close the position on the day of expiry, how would be the settlement, and if i don’t close, will i get any penality ????

  104. LIONEL says:

    Thank You Faisal; just clear me once that are the market orders blocked on both ( buy / sell ) side or are they only blocked at the buy side ?, and if market orders are blocked only on the buy side then can we exit my long ( CE/ PE ) position directly by placing sell market order ( if market orders are allowed on the sell side )?

  105. aarti says:

    sir i had a doubt regarding Black and scholes model, this chapter on physical settlement might be the wrong place for asking a question on B&S. However, i couldn’t find the right chapter, perhaps cause i am in a little hurry. Regardless, here’s my doubt: Sir in b&s model we assume that no dividend will be paid during the options tenure. But what if we have ex-div market price per share and dividend is constant each year, which is known. Say, ex-div price is 610rs , div is rs 25 and risk-free rate is 6%. What is going to be our Pa(underlying share price)?

  106. Srikanth Vemuri says:

    Very Useful Content…thank you

  107. SHYAM says:

    SIR YE CONTENT NISM CERTIFICATION K LIYE INUF HH

  108. Manish says:

    I have taken a call option for Auro pharma 400 for Feb exp @ 30.
    Call option is trading @ 20. What will happen if I don’t settle this at the end of the expiry if I maintain sufficient balance in my account.

    Will it be delivered to my Demat ac in cash or this will hold no value after the expiry

  109. Peter J says:

    Karthik,

    Awesome content as always.

    One quick clarification, I understand the short call ITM options have to give physical delivery of shares. Suppose I don’t have the shares in my Demat till Thursday but I buy them on Thu morning before the expiry will that do? Or do I need to buy them on the Mon or Tue of the expiry week? (Because of the T+2 settlement) Or is it even earlier when placing the order for the short call option?

    Thanks,
    Peter

  110. Rohith says:

    I’ve a query w.r.t brokerage charged for physical delivery of options.

    1) I sold AsianPaints 2500 PE for Jan Expiry by collecting 10 Rs Premium.
    2) On Expiry Stock is trading at 2400 .So On expiry value of the PE which I sold for Rs 10 will expire at the intrinsic value of Rs 100 ( 2500 – 2400).
    3) I am happy to receive the delivery of the stock at my contracted strike price of Rs 2500.

    How can I calculate the brokerage charged for this delivery ?

    My understanding is I will need to pay 600 ( Infy lot size) X 1280=768000 plus any brokerage plus STT on intrinsic value . Is this understanding correct ? What will happen to the intrinsic value of the PE I sold. Do I need to pay intrinsic value as well ?
    Your early reply is highly appreciated.
    Thanks
    Pawan

    • Karthik Rangappa says:

      Rohit, is it Infy or Asian paints 🙂

      Anyway, since you have sold the Put option, the obligation is to take delivery at the strike price.

  111. ASHITOSH BARAKALE says:

    Sir
    Sir plzz take seriously my question
    I brought reliance 2100CE feb @48rs off 250 shares = 12000 premium and before 3days of expiry i got loss of 43 rs then what will be the max loss, when I’m going to exit the position it shows u have enough balance u need 1.05 lakh more to complete order.
    What is meant that explain me and what types of chargea i have to pay

  112. vivek says:

    Karthik –
    I have started trading in options recently .
    I got a message at 10:00 pm from zerodha stating that “We see that you have an F&O position in contract with compulsory physical delivery .Please ensure you have sufficient margin/stocks to avoid your position being squared off .
    There is still 2 days to go before expiry and I can square off my positions before expiry so I just wanted to understand why am I getting this message now. Am I missing something?

  113. Gaurav says:

    Karthik- you are doing a superb job replying to each post. Had a quick question on covered call but with a long futures buy instead of shares in demat
    What happens on expiry in case I buy adani futures at 800 and sell the 850 call for 40 rupees
    Could you help me with scenarios of of adani ending at 750/800/850?

    • Karthik Rangappa says:

      Gaurav –

      1) @750, futures will be settled at 800 i.e. you need to take delivery at 800. 850 CE will expire worthlessly
      2) @800, same as above
      3) @850, same as above

      Anything above 850, then the physically delivery will be offset and the difference will be settled in cash.

  114. Kri says:

    How much will be the overall brokerage on future delivery positions?

  115. Ajay Bhushan Singh says:

    Hi Sir,
    Suppose I sell call option of SBI with a strike price of Rs. 200/- and I don’t square off the position.
    If the option is in the money on expiry date July 30, 2020 and SBI stock closes at Rs. 210/-
    It is explained by you that, I have to give delivery of 3000 shares of SBI
    but I wish to know whether intrinsic value of Rs. 10(210-200)*3000= 30000/- will also be debited from my account.
    Please, clarify.

  116. Tushar Pali says:

    Does It mean now all types of futures and options are settled physically and no cash settlement exist in derivative market unless sold or rolled over before expiry?

  117. Tushar Pali says:

    Even if I missed the expiry? Then what about the physical settlement circular of 2018?

  118. Tushar Pali says:

    As we maintain margin for both positions in futures so isn’t here a concept of unlimited loss?(I am a beginner and going through your varsity course before starting trading).

  119. Tushar Pali says:

    Can we suffer unlimited loss in futures ? If yes, then in which position?

  120. Tushar Pali says:

    Thank you for your reply☺️.
    But One question from your futures module certification test says “going long on futures is riskier than shorting futures”. How?

  121. Tushar Pali says:

    Sorry ignore this one I misunderstood it.

  122. Virendra says:

    Dear sir i purchased one lot of hero moto corp 3700 ce march expiry on 26th feb. The premium has almost become half now and i wish to sell it.

    1. Do i need to have extra margin to sell the option? In simple words, the max amount i can lose wont exceed my investment amount right?
    2. if the option becomes ITM before expiry, do i need extra margins for this as well to sell when my trade gets profitable or it can be sold as it is?

  123. Bharath KB says:

    Hi,

    I purchased Normal option selling in USDINR in 72.75 at premium is 0.05… Now the strike price is OTM…

    But i didnt buy the order before expairy…
    Now the strick price is OTM also…

    My margin are blocked for SPAN & Exposure…

    Can u suggest what will happen after expairy and how SEBI settle tge amount…

    • Karthik Rangappa says:

      Bharath, the margins will get unblocked after the expiry of the series or the time you choose to square off the contract. Till then, the margin will be blocked.

  124. TEJAS SARODE says:

    i did not understand NIFTY settlement. if carryforward my OTM hedged position and very next day if position goes ITM, if i exit my position with little loss. how such profit or loss is calculated. based on closing price or exited price
    NIFTY 18th w MAR 14700 PE NFO -150 65.55 65.55 0.00 0.00%
    NRML NIFTY 18th w MAR 14750 PE NFO 150 49.15 88.00 +5,827.50 79.04%
    NRML NIFTY 18th w MAR 14800 PE NFO -75 69.73 115.75 -10,935.00 65.99%
    NRML NIFTY 18th w MAR 14900 CE NFO -150 52.58 22.00 +4,586.25 -58.16%
    NRML NIFTY 18th w MAR 14900 PE NFO 75 106.15 191.00 +6,363.75 79.93%
    NRML NIFTY 18th w MAR 14950 CE NFO 150 25.98 16.25 -1,458.75 -37.44%
    NRML NIFTY 18th w MAR 15100 CE NFO 75 16.55 7.50 -678.75 -54.68%
    NRML NIFTY 18th w MAR 15200 CE NFO -75 8.80 5.40 +255.00 -38.64%
    NRML NIFTY 18th w MAR 14850 CE NFO 0 0.00 33.25 -120.00 0.00%
    NRML NIFTY 18th w MAR 14850 PE NFO 0 0.00 153.00 -1,038.75 0.00%
    NRML NIFTY 18th w MAR 15000 CE NFO 0 0.00 12.00 -1,102.50 0.00%
    Total +1,698.75

  125. DEEPAK says:

    Hello Zerodha, I am new to options and I am trying to learn how it works from varsity. I dont understand the nudge in kite “This contract will be physically settled on expiry and requires additional physical delivery margins if the position turns ITM. You can trade in the next expiry if you wish to avoid this.” Does it mean physical delivery is applicable if position is held till expiry? Can i trade options before expiry and this wont apply? I am trying to open and close positions before expiry date looking for profits in premium difference. Can I do that without taking delivery of shares if done before expiry date?Thanks.

    • Karthik Rangappa says:

      Deepak, physical delivery margins are required only if you hold to expiry. Else you can quickly trade in and out without the need for a physical delivery margin. However, if you trade closer to expiry, then the physical delivery margin is applicable.

  126. DEEPAK says:

    Thank You @ Karthik Rangappa..!

  127. Kumar says:

    Hi Sir,
    I am new to options trade. Suppose I Buy call option of SBI with a strike price of Rs. 200/- and I don’t square off the position.If the option is in the money on expiry date and SBI stock closes at Rs. 210/- will I have to maintain 3000 shares of SBI in my demat account or intrinsic value of Rs. 10(210-200)*3000= 30000/- will be credited to my account.

  128. RAKESH THALOR says:

    Why more margin need when buying shares in delivery (CNC) and hedging with selling call options and less margin needed if we buy future and hedge by selling call option OTM of equal quantity.
    example i have 1 lot in BPCL (delivery in DEMAT ) but if i sell OTM call option of same shares of which i have delivery you ask more margin but if instead of delivery if i buy future and sell otm call option your system ask less margin why the differance????

  129. Joshua says:

    Dear Sir,

    All these option theory and strategies are very good theoretically. But practically only applicable to liquid options otherwise one would get stuck buying ill liquid options.

    Can you suggest a list of liquid options for one to trade?
    Should one trade futures instead of options?

    • Karthik Rangappa says:

      Apart from Nifty and Bank Nifty, the top 10-15 stock options are liquid. If the trade is based on directional bets, then probably the future is a better bet.

  130. Rahul says:

    If i sold put option of infy and it gets in the money at expiry, will i get an option to take delivery of infy stock

  131. Joshua says:

    Hello Sir,

    Can you specify which are the top 10-15 stocks to trade options?

    And what would be the range of stocks for Futures?

  132. Abhishek Bhagat says:

    Sir
    I am new to option. I purchased a Call option of MRF of 88000 but but the current stock price is 84000 so on the expiry day what will i do?

    • Karthik Rangappa says:

      If the spot price is below 88000, the 84000 CE will expire worthlessly and hence you’ll lose the premium that you’ve paid.

  133. Akash says:

    If I sell share covered call then do i have to maintain margin money also on the day of expiry.?

  134. Jatin says:

    Hello Karthik,

    Suppose I sold a put of xyz stock at Rs. 1000 having lot size of 500 and i received a premium of Rs. 20.
    If the option becomes ITM and stock price goes down to Rs. 800 and Im ready to take the delivery at Rs. 1000
    Following are my doubts
    1) Will I also have to pay this difference of 1000-800= 200 – 20(Premium)= 180*500(Lot Size) or i will simply get a delivery at Rs. 1000

  135. Jatin Guliani says:

    Thanks for your quick response!
    1) The shares will automatically get credited to my demat, if i maintain funds equivalent to strike price*lotsize?
    2) Same process will be there in case of ITM call right?

  136. Jatin Guliani says:

    Thanks so much Karthik for clearing my doubts!

  137. Jatin Guliani says:

    Hey Karthik
    Please clear one more doubt of mine,
    Suppose i have a lot of itc in my demat bought at Rs. 210 per share and I sold a covered call of it at Rs.20 premium having strike price of Rs. 240 and it goes in the money. Suppose the premium goes up to Rs. 40 on expiry.
    Will i have to bear the loss of Rs. 20 per share, considering im ready to give the delivery?

  138. Hiten Tejas says:

    Hello Sir,

    I hope you re doing well.

    Hypothetically speaking Imagine stock X.

    Person A has bought call options at Rs. 100 Strike price, Person B has written said options at Rs. 100 Strikeprice. Note Person B does not have physical delivery of stock X in his demat.
    Both these people hold the stock till expiry. On expiry the Market price is Rs. 101

    Now Person A has to compulsorily take delivery of stock X at Rs. 100 and Person B has to stock X sell at Rs. 100 via an auction.

    What if there are no shares available in the equity market for person B to purchase in the auction? Assuming that day there was zero liquidity in the cash market.
    Where are the shares generated for Person B to purchase in the auction so that he can sell to Person A?

    Please assist me with this matter?

    • Karthik Rangappa says:

      This is possible, the exchange follows a procedure called ‘Close out’, under such circumstance. Basically, this will be cash settled.

      If auction is unsuccessful, or there is a short delivery in auction settlement, the shortages shall be financially closed out at the closeout price of the security as
      determined in Capital Market.

  139. Prathipa says:

    When is the physical settlement expected to be executed from the exchange? It’s been t+2 days after the expiry and I have not got the shares yet wherein the complete fund has been blocked from my account. Could you please clarify that?

    Regards,
    Prathip

    • Karthik Rangappa says:

      Monday was a holiday, it should reflect in your account today. Else, please do check with the support desk.

  140. Jimal says:

    Hello Sir,

    I had written Nifty 13850 PE expiry March 25.
    I took a premium of 10 points and let it expire worthlessly.

    Since on expiry the price becomes zero correct does this mean I have no additional transaction cost, like GST/STT/Brokerage?

  141. Joseph says:

    Hello Sir,

    Let say I am holding 15000 nifty OTM CE options that become ITM on expiry.

    Once expired it gets cash settled. But do I undergo transaction charge/brokerage for that?

    For stock options if the similar thing happens I would be required to purchase/sell option depending on my position correct?
    What brokerage am I charged, for squaring of options or delivery brokerage.

    and lastly if I am holding 1 lot CE stock option and 1 lot put option of same underlying on expiry both positions square of so the transaction is cash settled. Will there be any brokerage?

  142. Joseph says:

    Hello Karthik Sir,

    I don’t follow.

    a) If my nifty option expires ITM. Is there a brokerage charge as OTM options that expire have no additional charge.

    b) For stock options that expire ITM. Is the brokerage that charges the options brokerage or the delivery brokerage + other cost??

    c) If I sell a PE stock option and it expires OTM. No charge and no delivery required right??

    d) For stock options to get offset they have to be ITM correct? If I have an ITM call option and an OTM PE they will not offset during expiry right?

    e) Stock options in the same expiry will offset each other correct?

    Sorry for the hassle sir.

    Thank you for taking time to answer my questions.

  143. Joseph says:

    Dear Karthik,

    Basically I can just purchase any Nifty/Bank NIfty/ Fin nifty options, let them expire ITM and let them get cash settled?

    So I basically only get charged brokerage once correct?

    Is it better to let the option expire ITM or to exit the position before expiry and get charged additional brokerage + charges now that the STT rules has been abolished?

  144. M.Sindhu Raghuveera says:

    Sir , will you collect additional margins only for ITM options or collect additional margins for all positions?

  145. Prad says:

    I have sold a eurinr 87 apr ce. Now the call is illiquid since the value has gone above 88. There are no buyers. What happens at expiry ?? Will i have to take physical delivery of the euro at expiry ?? Or will i have a penalty and how is the value of the square off calculated at the end of the month since there is no trading?

  146. Avadhoot says:

    I have two questions
    1. Suppose current Market price of Reliance is 2000. If I sell a put of 1800 strike with 29 Apr 2021 expiry andif upon expiry my position is ITM,will the shares be delivered to my demat automatically or do I have to do anything? Does it require any signed consent letter or sonething?
    2. Suppose in above situation instead of selling put, I sell 2200 CE and it goes in the money say Reliance ends up at 2250 on expiry. Do I have to give delivery then? And If I don’t have the shares in my demat how is the position settled?

    Thanks in advance.

    • Karthik Rangappa says:

      1) Put Sell results in taking delivery, so you need to have enough margins in your account to take delivery of shares. No consent needed
      2) Sell call results in giving delivery, if there are no shares, it will be considered default and a penalty will be levied.

  147. Haridwar Singh says:

    Namaskar Sirji,

    Early in the chapter Volatility Applications you had mentioned that you generally avoid writing options near evens like rbi policy, corporate announcements.

    I will ask you this.
    When exactly should one implement a long straddle or short straddle.
    A few days before an event, the volatility always tends to rise. But the market could move either way also.
    Not sure how to go about this?
    Can you please explain

    • Karthik Rangappa says:

      Are you sure? 🙂

      I must have said that writing options around events is better because of higher volatility. Even the case study supports this right?

  148. s prabakaran says:

    i am new to option trading , can you please guide me to do option trading in zerodha…

  149. Laxmi Kant says:

    Sir,
    As per the basic definition bof the options, a long option (whether call or put) gives the buyer of option right to exercise the option(buy the stocks in case of call or sell the stocks in case of put). If this is the case even if the long callbor put becomes in the money buyer should get option to exercise his/her right and should not be compulsorily exercised forced to buy the stock or give the delivery ( since he is option buyer and already paid premium to get this right).
    However, by reading this module and the answers given to various questions, it seems that even option buyer is compulsorily made liable to exercise nhis option which is against the very nature/ concept of long options. Is it SEBI requirement or just Zerodha has mandated it for ease of implementation. Kindly clarify.

    • Karthik Rangappa says:

      Laxmi, this is how the contracts are structured. Think about it, if you hold a contract and then leave the decision to being open-ended, then the entire purpose of standardizing contracts becomes a futile attempt right?

  150. Amitabha Bandyopadhyay says:

    Hi Nitin
    Hope this message finds you well.
    For nifty and bank-nifty options, in case I forget to square off my open option position on expiry day – how physical settlement will happen. Will it be spot mines ITM options or something else?

  151. Lokesh says:

    I hold a call option currently OTM, so when should I square off sir.

    Thanks in advance.

  152. Vishnu Barman says:

    Hi Karthik,
    ques : On the expiry thursday, I have ITM Call which was utilising Margin of lets say 2 lacs.
    To take delivery I need lets say 10 lacs. Will that mean I need 8 lacs more only (since 2 lacs is still being utilised by that call option) ? Or will it need entire 10 lacs and free my 2 lacs the next day?

  153. Vishnu Barman says:

    Sorry, small correction. It is ITM put sold instead of call. 😅

  154. Karanbir singh says:

    If one buys any ce or pe option on expiry or day before expiry day of any stock than while maintaining the margin required because of the new rules.. he should square it off if his trade has resulted in profit or loss, or else there would arise an obligation to exercise the options.. meaning one can hold the contract till expiry or enter into a new trade in options on expiry or day before but in order to avoid the taking or giving of delivery of stocks.. he should square it off or else will be forced to comply with taking or giving delivery… right?

  155. Jitendra says:

    sir i hava little bit confusion about margin for PE sell option for physical settled of share. For example i sell PE of Reliance 1800 ( lot size 250) and for this position i already paid 95000( say). i want to know if this call becomes ITM then i have to pay 1800*250=405000 or 310000 ( 405000-95000=310000. Sir please clarify . Thanks

  156. jitendra says:

    thanks . But what about my blocked margin?

  157. Karanbir singh says:

    Do you allow intraday trading in stock options on expiry day after the new rules which have been enforced as i saw a notification on your kite app which shows you cannot trade itm options on expiry day?

  158. Ankur Goyal says:

    Hi Sir
    Sir, can you suggest where can I get the historical data of the option chains for a particular day, with all the charts (1min, 2min, 5 min, 1 jour etc)

  159. Ankur Goyal says:

    Sir, checked Sensibull pro as well. Also, many other sites but no luck.
    Thank you so much for the prompt reply.

  160. Jitendra says:

    sir thank you very much for reply. Still i thing i want to know that if my sold PE is ITM then at what price it will be squared off means 1. Price @ i sold PE ( say 15 )
    Or 2. Price @ expiry time ( say 25).
    Please clarify because i am taking share delivery then sold PE loss i have to bear?

  161. Karanbir singh says:

    HI! Do you allow intraday trading in stock options on expiry day after the new rules which have been enforced as i saw a notification on your kite app which shows you cannot trade itm options on expiry day?

  162. jitendra says:

    thanks karthik sir. After yours such a nice explanation the option things looks very interesting. sir there is any parameters at which we can select shares for option selling (PE/CE)?

  163. Mohit says:

    If my view is bullish and I hold a CE and it gave me a Profit. Margin money in my demant account for holding the trade, in that case, be X. Then on the time of position square-off Karne I need to sell the option. So in that case Will the broker ask me to increase my margin money? Because in selling it asks for a greater margin, they ask for 1-2L if I want to sell any option.

  164. Pratik says:

    Dear sir I was holding Bajaj auto April futures as well as shorted 3800 Ce. I sold my future lot in profit but didn’t square off my 3800 Ce because of liquidity. Bajaj auto closed at 3836. I don’t have delivery in my demat account to give shares. Further will it go to auction? If yes how much penalty can I face. Can you give me a physical example of this? Thanks in advance. Maximum what will be my loss.

    • Karthik Rangappa says:

      Yes, Pratik. I think this depends on the auction market. I’d suggest you talk go the support team regarding this.

  165. Pratik says:

    Sir they have Credited 944000 in my account as well as debited 1140000 in my account ( Being prov debit for April 29th. Is this difference amount is my loss?

  166. NEENA TREHAN says:

    Suppose I have shorted a call for which I have adequate shares in my demat account and on expiry the the contract becomes ITM, the delivery of shares is given from my demat account. What will happen to the written CE contract, I mean I will be retaining the premium received by me or not?

    • Karthik Rangappa says:

      You need to look at it on a net net basis, your shares will be gone at a much lower price compared to the market. The premium retained will factor in this loss.

  167. MRITYUNJAY GUPTA says:

    Suppose I short a lot of put option of xyz stock at 200 strike price. At expiry date current price is 220 . So it is ITM pe option. I have a lot of xyz in my demat .
    What is the procedure of physical settlement?
    Is it enough to have stocks in demat?
    Do we have to authorise the broker using pin and OTP for taking stocks.
    Please clarify ..
    Thanks

  168. debasish mondal says:

    Sir,
    1)to avoid physical settlement, can I square off just before 3:30 on expiry date? (options)
    2)If sufficient margin is not available for the open position two days prior expiry, will it be squared off automatically?.

    • Karthik Rangappa says:

      1) Yes, you can
      2) Yup, you cannot carry forward the position without the necessary margins in place.

  169. MRITYUNJAY GUPTA says:

    Sorry,
    Let it be Call option. Then it will be ITM.
    Rest query is same .

    • Karthik Rangappa says:

      Yes, if you short a call option and it’s ITM, then you will have to give delivery of the stock. It is ok as long as you have the required amount of stocks in your DEMAT.

  170. MRITYUNJAY GUPTA says:

    Thanks sir

  171. Som says:

    Dear Sir,
    I want to get one very basic doubt clear. If we do intraday trade on shares, we have to close our positions before 3:20.
    If we buy or sell options, do we have to close them before expiry as well?
    Suppose if I buy an option and the option expires ITM, I don’t have to close my position, right? After expiry, my trading account will be credited with the premium, right?
    Similarly, if I sell an option, and it expires OTM, again I don’t have to close my position and will get credited, right?
    Please clarify.
    Thank you.

    • Karthik Rangappa says:

      Post expiry the based on the moneyness you and the position you will either get a credit of shares or you will have the give delivery of shares. Btw, no need to hold the option to expiry, you can choose to sell it anytime you wish. If the option is worthless, then there is nothing to worry about.

  172. Siva says:

    I would like to clarify some doubts of Covered Call

    I have APLL stock in demat holding equal to lot size 550 And wanted to do a Covered call to receive the premium.
    CMP : 942 and preferred strike price 1140.( Likely to sell at this price)
    My Doubts: Especially the actions from my end ( Of course Margin should be maintained, understandable)
    1) If the spot price doesn’t reach to my sold call option strike price 1140 at expiry, end result is option worthless, but should i do something from my end? The position will close itself with profit of premium collected & margin will be released.
    2) If the spot price is at 1140 which is equal to my strike price, then what would be the condition?
    3) If the spot price is 1200 and if i am ready to give delivery of my stocks, what would be the P&L, ( Should I pay the difference amount 1200-1140) or only delivery of my holdings and get the money ( 550 * 1140 = 6,27000 + premium which is already received)
    Please clarify and Thanks for your support.

    • Karthik Rangappa says:

      1) Yes, no action from your side apart from making sure you’ve got the stock + margins
      2) The option will still be worthless, you get to retain the premium
      3) Delivery from the holdings at 1140.

  173. Siva says:

    Thanks for your feedback and appreciate your support. I read your varsity material, sometimes when it comes to practical applications, doubts are getting created in our mind.

  174. Som says:

    Sir, I was asking about options with index as underlying. Could you please tell me about that?
    Query at comment – May 08, 2021 at 6:03 PM

  175. Shriniket Patil says:

    Hello,
    I have a question on physical settlement and mark to market.
    In cash settled transactions, M2M gives a cumulative position of the profit/loss. When M2M is credited to trading accounts, it implies cash settlement eventually. However I am not able to understand how this would work in the case of physical settlements?

  176. Neha Verma says:

    Hi,
    I have bought liquid bees and pledged these to get margin for options writing. Suppose I have sorted PE of a stock which goes in the money at expiry. In this scenario, physical settlement will be applicable. Now pls clarify following.
    1) As I am ready to take delivery and have sufficient margin too in the form of liquid bees. Will I need to unpledge my liquid bees and sell them to ensure sufficient cash in account or it will be automatically done by Zerodha?
    2) What will be the rate of brokerage charges in physical settlement?

    Regards

    • Neha,
      1. The physical settlement will happen because you have sufficient margin. However, since this is a take delivery position, you will need to pay cash for the stocks credited to your account leading your account into a debit. You can either sell the stocks physically settled or unpledge and sell the liquidbees to make good of the debit.

      2. Since there are additional risks associated with physical delivery, you will be charged 0.25% of the settlement value as brokerage.

  177. Preeti Choudhari says:

    Hello sir
    I have one hedged position
    ITC MAY 200 CE LONG
    ITC MAY 210 CE SHORT

    I will try to close the positions on monday or Tuesday of expiry week but if I am unable to close the hedged position because of illiqidity
    Then will the position be netted of on its own or I will receive the physical delivery msges from zerodha near expiry

    • Karthik Rangappa says:

      That’s right, in case you don’t close the position and these get into the expiry, then based of the moneyness of the option, there will be a physical delivery situation. However, if both the strikes are ITM upon expiry, then it will be net off. Really depends on the spot price upon expiry.

  178. Preeti Choudhari says:

    Hello sir
    I took 4 lots bull call spread in ITC

    LONG ITC 200 CE
    SHORT ITC 210 CE
    If till expiry itc price goes to 215 and both the contracts become itm
    1 )Then will I get physical delivery msges from zerodha
    2)will the spread netted off by exchange
    3) netting off is done by zerodha itself or we need to do something extra
    3)in charges 0.1 % stt you mentioned will be on margin required or will be on entire contract value

    • Karthik Rangappa says:

      1) No, the positions will net off
      2) Yes
      3) Nothing extra from your end
      4) On the contract value.

  179. Preeti Choudhari says:

    Hello sir

    Let me appreciate you first.
    You are so prompt and perfect
    A big thanks from my side

    Sir
    In bull call spread

    Buy 200 ce itc april expiry
    Sell 210 ce itc april expiry

    If at expiry
    Itc price is somewhere 213
    So
    my buy position is itm
    And
    My sell position is ctm

    1 Can they be netted off or
    2 I will get physical delivery msges from zerodha

  180. Preeti Choudhari says:

    Hello sir

    In bull call spread if buy position expires itm and sell position expires ctm
    Will they be netted off

  181. Preeti Choudhari says:

    Sir
    Is it confirm that in the last week of expiry
    we will not get any physical delivery msges from zerodha if the position is hedged

    I am asking this because one of my friend claims that he received physical delivery msges even when his position was hedged

  182. Neeraj says:

    Hi Sir

    I am new to options trading. Pls tell me that if I have shorted option contract (Call or Put) and the contract ends Out of Money i.e expires worthless, is there a need for me to squareoff my position on the last day of expiry by placing a squareoff trade or will it be automatically be squared off @Rs.0.00 and the full premium be credited to my account?

  183. Gowtham says:

    Hi Sir,

    One smal query regarding margin for covered call.

    1. I have 250 quantities of reliance at 1900 in my demat.

    I pledge these shares for margin and i use 50% of my own cash and 50% of this pledged margin for selling 2000 ce at 40 rs.

    Now when nearing expiry the margin requirement will increase almost 2× , so do i have to square off my option contract if i dont know have enug cash to maintain margin.

    2. If reliance expires at 2020 on last thursday, should i have to unpledge the shares and give delivery or the exchange can get pledged shares directly?

    3. Lets say if on last thursday reliance ends on 2040 and i didnt covered my call option contract , and if i try to unpledge the shares that thursday i will get it the next day only . So when will exchange take physical delivery from my account. End of last thursday or any specific day.

    4. If reliance ends near 1980 and if i have pledged shares for margin, and i covered 2000 ce on expiry and if i try to unpledge the shares and the next market if it gaps down to 1950 i may lose some profits . How can one avoid such things due to 1 day difference in unpledging.

    • Hi Gowtham,
      1. You can use the pledged margin for the additional margin required on the expiry day.
      2. Yes, if Reliance expires above 2000, it will be ITM and you will have to unpledge the shares to give delivery. If you don’t, it will lead to short delivery.
      3. You will need to place the unpledge request by Thursday evening. We will unpledge and have it marked to the exchange for delivery on Friday.
      4. You won’t have any physical delivery obligation if Reliance closes at 1980. About unpledging, yes, it requires 1 day to unpledge currently. We are working on a process to allow selling pledging securities instantly and process the unpledge if solved.

  184. Gowtham says:

    Hi Faisal,

    Thank you so much for your time. One last question,

    1. If i have 5L in my account, and if i have shorted reliance 1900 pe it would need a margin of 1.5L (approx) and on expiry margin will double nearly . So as on expiry date, 3L margin is blocked for 1900 pe in this. So if reliance expires ITM (say 1880) and if im willing to take delivery of shares at 1900. Will the margin taken for 1900 pe option selling will also be considered. I.e – 2L cash+3L option sell margin = will this be enough for allowing exchange to exercise the contract.

    Or should i have separate cash balance of 1900×250= 475000 amount in funds to get shares delivery.

    In simple, will be my option short blocked margin will also be considered when exchange checks margin requirement shen it gives shares delivery

  185. Preeti Choudhari says:

    Hello sir

    If I am holding bull call spread
    Long Itc may 200 ce
    Short itc may 210 ce

    And itc spot expires at 213

    If I’m unable to close the position till expiry and I am getting physical delivery msges from zerodha
    you mean to say still I should not worry as the position will be netted off

    • Karthik Rangappa says:

      The position will be netted off only if both the options are ITM. In this case, since both are ITM, it will be netted off.

  186. Aditya says:

    Dear Karthik,

    In real i have a deep itm option 14400 ce for may month expiry. Now the current index spot price is 15216 assuming expiry @15300. I read on zerodha support that if you let it cash settled and dont sell before expiry you will get profit based on intrinsic value(Spot-strike price)*lot+ STT charges..

    If yes
    1- please help me calculate my real profit
    2- Is it a good practice to let the ITM option be cash settled for more profit.
    3. Current profit is 33k but as per cash settlement it will 900*75=67500?

    • Karthik Rangappa says:

      1) If expiry is at 15300, intrinsic value is 15300-14400 = 900. So you will get 900*75 minus applicable charges
      2) I’d prefer to close the position before expiry
      3) You can hold the position till the last minute i.e. maybe till 3:15 on expiry day and close it.

  187. Landon says:

    Hello Karthik,

    Why do so many websites like sensibull use The future Value as a basis for options and not the spot price??

    Do we need to buy options based on the spot price or future price? As the future price is generally at a premium which can give incorrect basis?

  188. mousam dey says:

    sir i want to sail infosys jun1000pe
    now my question is
    1.how many mony need for this?
    2.stap to sail infy jun1000 pe in zerodha (not intra day but cnc basis)
    3.as we all know at the end of expary day of jun the contract vallu will be rs.05 if infosys stok vallu remain grater than 1000. can i bought on the expary day @ .05?
    4.if at the time of expary infosys valu rs 980. then how i can pic delivary of infosys?
    plz ans my 4 questin if i wrong in eny stage pleas correct them.

    • Karthik Rangappa says:

      1) Please check the margin calculator for this or you can see the margin required in the order window also
      2) MIS order for intraday
      3) Value depends on the spot price
      4) No, delivery is possible only on the expiry day

  189. Divij says:

    Hello Sir,
    I hope you are doing well.

    I have been using Sensibull for a while and I often see that they use the Future price as a reference instead of the spot price. I have also seen this on other websites as well.

    Why is this the case? When we build strategies do we base them on the current future price or the current spot price??

    • Karthik Rangappa says:

      Sorry, I think you had posted this question earlier as well, which I somehow missed answering.

      Sensibull uses an improvised Black 76 model instead of the conventional Black Scholes model, which they believe suits Indian markets better. In this model, they use the futures price instead of the stock price and ignore interest rate, dividends, etc as these are implied in the futures price.

  190. Divij says:

    Dear Sir,

    Thank you for answering my doubt.

    But I have various places that also use the future chart as a reference over spot chart when placing options orders.
    Why is this the case?

    Also do I place my option orders via sensibull with a reference to the spot or future price?

    • Karthik Rangappa says:

      Most people these days have made that change. I’d suggest you do both for few months and see which is giving you a better result.

  191. Divij says:

    Hello Sir,

    But I don’t know what I should use as a reference to place option orders.
    As generally during the start of the month the future is usually traded at a premium.
    For example Nifty is 15301 and Nifty June 24 is 15334.
    Atm would be 15300 wrt Nifty 50 and 15350 wrt Nifty June 24.

    What should one do?

    • Karthik Rangappa says:

      Futures may be better since it anyway factors in dividends and interest rate. Like I mentioned, stick to futures for a while and see how it goes. If it helps you with better results then good, else shift back to spot.

  192. Praveen says:

    Sir, Now i got a clear idea on Physical settlement of ITM options.
    Only doubt left is CTM??
    Example: Wipro closes at 420 and i m having all the below 4 CEs.
    1. 425CE
    2. 430CE
    3. 435CE
    4. 440CE
    Out of the 4, how many are CTM?? (What is the criteria to call an option as CTM)
    How the physical settlement happens in CTM??

    Is the series valid like ATM–>ITM–>CTM–>OTM ???

    • Karthik Rangappa says:

      3 strikes above CE and 3 below PE are considered CTM option (I need to double-check). Yes, no physical delivery for CTM options.

  193. Darshana says:

    Hi…i have query about my actual incidence while tradinh,please help me out through it

    I have bought indusindbk 1020CE @45.90 of June Expiry on 25th May(2 days before May expiry) And sqaured off the position on 28th may @47.
    But my account statement on 27thmay(expiry day) is showing the debit of Rs.8.73Lakh towards net settlement of equity.
    Still that amount is not Credited back to my Demat account,can you please clear answer this why is it so?

  194. Darshana says:

    Hi,as i have asked about my Indusindbk CE query,On the same expiry day(27th May),i had 2 other Positions which i could not squared off,
    1)short position in adaniports 780PE(which closed ITM)
    2)long position in adaniports 830CE
    Now,my question is,the debit from my acount around 8.73L ,is due to these two positions?

  195. srinath says:

    bro where to find option greeks

  196. Siddhant says:

    Want stocks settlement day ppt or videos for options selling, through which we can get additional information.

  197. akmittal says:

    sir, if i do not square off my position in future and option before expiry, so exchange put any kind of penality on me. explain stt

  198. sangeet agarwal says:

    Hello Sir,
    Thank you for this amazing module. Have learnt a lot about the option chain through this.
    I have some queries, i hope it will get cleared as well.

    1. I have to square off my position on the last thursday of every month by 3.30PM or till a different time? I mean what’s the last time to square off to not get the physical delivery?
    2. On Monday of the last week of expiry, additional margins will be levied, so what is the percentage of the additional margin? And if i don’t have that amount in my trading account, will i have to add extra amount or it wont be reqd. as shares of other underlying is already there in my account?
    3. Also, why will not anybody square off his/her position till the last thursday? I mean obviously, no1 would be doing it intentionally but what can be the possible reasons of not closing or roll-over the options??I feel if i am in the market to earn, why will i go against its rules?
    Thank you.

  199. sangeet says:

    Sir, for the third question, If anyone wants to take the delivery, wont it be better to take it from the spot market instead of taking the delivery from the option chain. Also since the option hasn’t been squared off till the expiry, wont there be any penalty for this?

    • Karthik Rangappa says:

      If you get an opportunity to buy a share at 450 when the same is available at 500, won’t you like it? Hence ppl take delivery via options. But for this to happen, the market has to move in the right direction.

  200. Jason says:

    Sir,

    Apart from nifty, bank nifty and a few 5-10 stocks is looking at the OI per strike prices worth it?

    Normally you consider Put OI to be bullish and Call OI to be bearish for liquid contracts.

    For example
    IDFC first bank has a highest OI at 60 CE which is also ATM. While it has fairly High OI at 65CE and 70 CE respectively.
    While PUT OI and 60, 55, 50 are about one third of the call OI.

    Looking at this Option chain one could say that market is bearish towards IDFC first bank and it is a very good chance it will not cross 65, 70 and could very well reverse from 60. As CE of 60, 65, 70 are strong resistances.

    What should I do? Is it worth considering open interest for Stocks like IDFCfirst bank?

  201. Ganeshwar says:

    Hi Sir,

    SBIN is trading at CMP 433.6. I want to sell SBIN JUN 430 PE at CMP level 10.7. Lot size is 1500. I want to continue this contract till June expiry even if SBIN supposed dragged below 430 price say SBIN CMP 402 and SBIN JUN 430 PE went high supposed 30-50 range ( rough figure.. calculator not available) then what will happen.
    Option 1 :- Will I need to buy SBIN JUN 430 PE at that times CMP and need to book the loss? Or
    Option 2 :- SBINs 1500 shares will get credited to my demat account which is having enough balance for this transaction.

    If Option 1 is the answer then I don’t have further questions, thanks. But,
    If Option 2 is the answer then what will be the buying price? SBIN 430PE sold so buying price will be 430 or SBINs CMP of that time say 402.

    Please help me to get the answers.

    Thanks and regards,
    Ganeshwar

    • Karthik Rangappa says:

      If you held SBI PE sell, then yes, you will have to buy SBI. Yes, the credit will happen automatically if you have enough balance. YOu would have bought SBI at 430 in this case.

  202. Himesh says:

    Hello Sir,

    1)On Stock X I have initiated a 2 leg Bull Call spread.
    Will my margin requirements increase during the last week before expiry?
    1a) If both legs become ITM
    1b) If 1 leg is ITM and 1 is Atm/Otm
    1c) If both legs are OTM.

    2) On stock X I have initiated a call ratio back spread ( 3 leg strategy uneven strategy). Usually you have 1 ITM sell and 2 OTM buy.
    Will my margin requirements increase during the last week before expiry?
    2a) if all three legs become ITM
    2b) if 1 leg remains ITM and the other 2 remain OTM?

  203. Dr Channa Hubli says:

    Sir, Regarding Srikant K V ‘s query, Aug contract is started next day of May Expiry. Ie, last week (Last Fridayof May), But not at the beginning of May. I Believe. Please correct me, If I am Wrong. ( In June- May Contract ceases to exist and aug Contract is started, ( At the end of May)

  204. Himesh says:

    Hello Sir,

    I think you may have skipped my question.

    Hello Sir,

    1)On Stock X I have initiated a 2 leg Bull Call spread.
    Will my margin requirements increase during the last week before expiry?
    1a) If both legs become ITM
    1b) If 1 leg is ITM and 1 is Atm/Otm
    1c) If both legs are OTM.

    2) On stock X I have initiated a call ratio back spread ( 3 leg strategy uneven strategy). Usually you have 1 ITM sell and 2 OTM buy.
    Will my margin requirements increase during the last week before expiry?
    2a) if all three legs become ITM
    2b) if 1 leg remains ITM and the other 2 remain OTM

    • 1. Yes, margins will increase during the expiry week.
      The sell leg will have higher margins on the expiry day regardless of the moneyness of the contract(ITM/OTM)
      The buy legs will have higher margins only if the contract is ITM.

      2. The same logic applies to this strategy too as explained in point 1. Each of the legs is treated individually for physical delivery margin calculation.

  205. Praveen says:

    Hi,

    I have two positions on BHEL – Sell 74 CE and Sell 80 PE – if BHEL closes in between this range, both will be in the money.
    do they offset each other? or do i have to try and close these positions before expiry (i understand the margins might be high when we reach expiry) or will I be obligated to give delivery of these stocks?

    Thanks,
    Praveen

  206. Partha says:

    Hello Sir,

    Stock and stock options are more volatile than index options.

    But why is that Index and index options have the most over night risk as they tend to gap up and gap down so many time compared to stock options??

    • Karthik Rangappa says:

      Thats because of the liquidity of these index contracts. There are a lot more traders trading index contracts compared to stock options.

  207. Parth says:

    Hello Sir,

    Would this mean stock options have lower overnight risk compared index options.

    Obviously stock options can be influenced by other factors as well.

    • Karthik Rangappa says:

      Risk depends on the individual profile of the stock. Yes, stock options are riskier as a number of factors can easily influence the underlying price and the option premium.

  208. Keshup says:

    Hello Sir,

    I hope you are doing well.
    I have two questions for you.

    1)You have mentioned that you usually exit your option positions once it becomes ATM/ITM.
    Lets say I still think the existing trend will continue, do I sell my current ATM/ITM option and purchase a new OTM option? Or just let it be the way it is?

    2) If I have implemented a bull call spread, bear put spread position my max profit is only gained upon expiry or if the stock moves by a very large amount. So imagine I bought SBIN 440 CE and sold 450 CE. SBIN reaches 453 making both my OTM options ITM.
    Do I square of this position and re set up a 460 CE buy and 470 CE sell position?

    • Karthik Rangappa says:

      1) Depends on the script and market situation. If its liquid, maybe continue, else you could consider selling and buying more liquid strike
      2) Max profit is upon expiry, but when large moves happen, the profits will be very close to max profit and therefore you can consider squaring off the position.

  209. Keshup says:

    Hello Sir,

    Just a follow-up to my second question.

    Assuming I do consider holding my 440CE and 450 CE till expiry. Since this is a hedged position and both are ITM would I have to pay additional margin? Or does the system automatically deduct it or allow me to continue without asking for more margin.

  210. Arun says:

    I have HDFCLIFE future and itm sell call option, if it remains same during expiration, will this be netted off?

  211. Arun says:

    Thanks Karthik, if for example the sell call becomes ATM or CTM, what will happen? It expires worthless? And I have to take delivery because of positions in long futures of HDFCLIFE?

    • Karthik Rangappa says:

      ATM/CTM wont be an issue. Physical settlement is only when its ITM. So yeah, only Futures will be settled.

  212. Nishit says:

    Hi

    What happens if i sell a call contract for ITC for a lot of 3200 shares with a strike price of 217 , on the date of expiry the contract is out of money , meaning i get to retain the premium money . My question is , how is the margin money settled , i was charged some amount of money as margin money charged to cover the risk in case the price goes beyond 217

    • Karthik Rangappa says:

      If the option expires worthless, then you get to retain the entire premium and the margin will be released.

  213. Arun says:

    So you say a CTM/otm sell option expire worthless with a long future of HDFCLIFE I need to settle, meaning need to buy the lot and only in case I have itm sell call option it’s netted off

  214. Rajesh Patel says:

    1)I m new to options If i square a position of cadila call option say a week before and if it turns itm on the expiry day do i have to take delivery?

    2)Can i square off my position of July expiry before june expiry does it will lead to any penalty or delivery obligation?

    • Karthik Rangappa says:

      1) No because you have squared off your position and out of the market
      2) Yes, you can Sq off anytime you want. No need to wait for expiry.

  215. Arun says:

    Thanks Karthik, that helps. I think holding ITM sell call option with the spot so close but little far from strike will be considered risky as chances are that they can become ATM OR OTM and in that case better to square off both. If the spot moved so far from strike worth to keep both future and ITM call option in which case they will be netted off automatically and will earn more profit as we can keep the sell call premium as well.

    • Karthik Rangappa says:

      True, but the risk of strike transitioning to ATM or OTM will exist. The profit will be capped in my opinion since long Fut is offset by a short call.

  216. Rajesh says:

    Hello Sir,

    Can you explain delta hedging and its applications?

  217. Arun says:

    Profit definitely capped but by exiting both future and current ITM SELL CALL earlier than contract date, We are loosing the premium which we might get if we let it to expire but carry the risk of the option be becoming OTM OR ATM on expiry which then makes me to execute long future.Imagine spot is on call strike + premium and it’s an ITM call with future in profit, if we exit both , we loose the premium of call option as it’s considered a trading of premiums. Had I allowed to expire, my loss starts from call strike + premium which will be nulled by future position.

    • Karthik Rangappa says:

      I get your point, Arun. Perhaps its best if you paper test this for few expiries before deploying capital.

  218. Nikhil says:

    Namaste Sirji,

    1) How does one know if the IV will rise/fall in the future?

    2) Does the IV for all strike prices rise the same amount? Or do some rise some fall?

    • Karthik Rangappa says:

      1) Tough to call. But you can compare the historical volatility and current volatility to get a sense of where the volatility is moving.
      2) No, its stock specific.

  219. Nikhil says:

    Hello Sirji,

    I mean IVs for a said stock. Do all strike prices IVs increase when they increase and vice versa or is it different?

  220. Amrish says:

    Hello Sir,

    Imagine If I had sold IDFCfirstBank 65CE for 0.5 while the spot was 58.
    Suddenly spot increases to 63 which obviously causes my premium to rise and theoretically I am in a loss. But until it crosses 65 I still am not in a loss.
    So how should I place a stop loss in this kind of situation?

    • Karthik Rangappa says:

      You can place it two ways –

      1) On the spot price (and don’t look at the premium). So spot from from 58 to 63, you square off the option irrespective of the premium
      2) On the premium itself (without looking at the spot). So premium moves from 0.5 to 2, you square off the option irrespective of spot price.

  221. Amrish says:

    Hello Sir,

    How would I be able to put a trigger SL if I bought sold premium and base my SL on the price of the spot?

    • Karthik Rangappa says:

      You won’t be able to do that, you just have to track the spot closely and take a call on when to exit the option.

  222. Adam says:

    Hello Sir,

    A) I have sold 24/06/21 IDFCFirst bank 65 CE for .50. Today was the last day of expiry yet the price is showing 0.05? Shouldn’t the price be zero as this option expired OTM and has no intrinsic value?

    B) If I have just let my position expire worthlessly do I have to pay additional brokerage?

    C) If I have squared of my position on the last day, I would have had to pay brokerage of 20 per lot correct?

    • Karthik Rangappa says:

      1) Yes, it will be 0. Please check the closing prices
      2) Nope
      3) Yes, but its 20 for the entire trade and not per lot.

  223. Adam says:

    Hello Sir,
    To follow up please see attached link..
    1) All OTM nifty contracts are showing 0.05 as a LTP. https://imgur.com/a/FWqgxQJ
    Similar situation with IDFCBank.

    3) Wait isn’t zerodha 20 per lot or 20 per trade? 20 per trade would mean I could buy/sell 10 lots for 20

    • Karthik Rangappa says:

      1) See the settlement price, what you are seeing here is the closing price (settlement price will be 0)
      3) Yes sir, its 20 per trade. A trade can have 100 lots, as long as its in a single trade its 20.

  224. DARSHEEL RATHORE says:

    Why my P&L report is not matching the ledger balance. I have deposited around 2 lakh on 6th of JUNE 2021, so my overall balance was 251000/-. But after taking multiple trades till now(24th June) my ledger balance has come down to 245979/- but my P&L report says, deduction is around -4400/-. So if i do the calculation then my ledger balance should be around 246000/-.
    So my question is why zerodha deducted 600 rupees extra?
    P.S : I am new to options trading.
    Thanks

  225. Adam says:

    Hello Sir,

    One last follow-up.

    If the closing price is 0.05 where can I see the settlement price on the option chain or where ever?

    Also, I currently use HDFC securities and I have 30 per lot brokerage.
    The main pro of this is It is linked to my bank account and whenever I don’t want to trade money is stored in my saving account.

    If I open a Zerodha account, I will have to constantly top up my account.
    Many times I have heard on the news that people are complaining about the Zerodha website getting stuck or terminal crashing etc. This is scary and has prevented me from switching from HDFC sec. Even scared that a brokerage firm like Zerodha could just get caught giving too much leverage and cause clients to lose money. Hence I am still with HDFC sec.
    However. I do think Zerodha’s platform is substantially better.

  226. Manan says:

    How many days does it take for a Futures of any stock to be delivered to my demat. Eg: 24th I had 1 lot of RIL and I dint sell that position, so I believe it will be delivered? When will the delivery happen?

  227. Sriram says:

    Hello Sir,

    Vix is currently pretty low rn, and most stocks volatility is low.
    So are we better of avoiding writing options and index options as the premium is very low?

  228. Ajay says:

    Due to the new regulations enforced by Sebi, is there any impact on option buyer?
    Meaning, can I buy stock option today and sell it the very next trading day?
    Are there any new rules for this?
    The question above may sound stupid but i needed to ask. Thanks.

  229. joseph says:

    if I long futures and prices fall, will I be obliged to buy at oower price or at price I bought shares

  230. Vk says:

    Hi…so continuing with same example, if I have SBI stock, would that be automatically delivered or do I have indicate any flag while selling option

  231. Vinay says:

    Question is , For Eg If the sold a Iron Fly on monday and market remain on the same range on the expiry day My hedge position (Buy) went to zero and my sold position are approx to zero so is it mandatory to close all my positions or should i leave it (to save my brokerage charge).

  232. Tarun says:

    Hello Sir,

    I hope you are doing well.

    Currently, I have read that we are not allowed to buy naked OTM options for Nifty and bank Nifty on zerodha.
    How OTM is this considered??

    Secondly, If I were to implement any spread position, how do I implement it If I am not able to buy a long OTM contract?

    • Karthik Rangappa says:

      On the order window, you can see the range, Tarun. You try placing the sell first and then the buy leg.

  233. Tarun says:

    Hello Sir,

    If I were to sell an option then buy the option, wouldn’t that require me to have a very large capital even though I don’t require it?

  234. Kalyan says:

    Namaste Sir,

    For stock options, If I have sold far OTM options would I be subjected to the margin increase or is it only for ITM options, in the last week of expiry?

  235. Kalyan says:

    What would far OTM options be classified as? How far away from the strike price.
    Despite having the exact same amount in my portfolio, I should not have an increase in margin requirements correct?

    I am trying to implement a covered call strategy.
    I would like the option to expire worthlessly, instead of squaring it off before the last week.

    Could you suggest how I should implement this?

    • Karthik Rangappa says:

      Any strike which is at least 10-15% away from the current price can be considered far OTM. MArgins are based on F&O portfolio, it does not consider the EQ segment holdings.

  236. Sathiyaraj says:

    Hi bro tatachem was trading 760
    For example I sold 740 Ce and 790 pe for this month July expiry as I see there is not more buyer in 790 PE volume is 4K only lot size 1000
    If I hold both options until expiry 740 can easily exit coz got buyers volume 48k
    I am thinking what will happen to 790 pe if there is no buyer ON THE EXPIRY DAY

  237. Manthan says:

    Is that only in the money options only get physical settlement.
    Or otm options also get physical settlement

  238. MUKESH HARSH says:

    सर मैं option में New हूँ ।
    मैंने SBI July का 440 का call option लिया है । expiry Date आज दिनांक 29 जुलाई 2021 पर अब मेरे अकाउन्ट पर 16 लाख माइनस में दिखा रहे है | इतना पैसा मेरे पास नहीं है। मुझे अब क्या करना चहिए

  239. Praveen Vr says:

    Suppose I buy PVR 1200 Stoke price call option ( premium : 190/-) . At the end of contract share price is at 1500 . And I am ready to take physical delivery , what is the amount I have to keep in my account. Is it ( 1200* lot size )o or ( CMP*lot size)
    Please tell us .

  240. Akshay says:

    Sir, suppose i have 3200 ITC shares and i pledge it for covered call. And call sell becomes ITM. How the position will be settled? Am i suppose to unpledge or zerodha will take care of it?
    Please reply

  241. Chetan says:

    Hello Sir,

    Is fully automated algo trading legal in india?

    I have seen so many people talk about this? Even Nikhil Kamath also.

    • Karthik Rangappa says:

      Its not illegal, but you need to take the exchange approval for this. By the way, full automation is not permitted for retail.

  242. Chetan says:

    Hello Sir,

    How does streak then do it? How does one trade via streak?

  243. DS says:

    Hi
    I had forgotten to square off the July Futures of ITC on the day of expiry . I ensured fund is available for settlement . By when will the stocks get credited in the account and i can sell off?

    Rgds

  244. ANBU says:

    Sir,
    What is the charges for physical settlement.
    I sell tata motors 285 ce July 21 Expairy. I forgot to close the trade. Now it is went physical settlement. What is the charges and Etc. Pls

  245. sumeet says:

    In the same question, what if I have one lot of share in DEMAT and ready to give delivery then what about ITM call premium. Please reply

  246. Didigam Nithin says:

    How about indices futures and options? are they cash-settled? How can be physical delivery of indices possible?

  247. Swati Joahi says:

    Sir,
    Truely speaking I am new In options trading. I Have sold one lot of Drreddys lab strike prise 5600. @ Rs10 premium.By expiry Dr Reddy’s spot prise is 4880 if I don’t close the position & .05 is the premium then what will happen?

    • Karthik Rangappa says:

      Swati, It depends on which option you’ve sold – CE or PE. If the option is OTM then it will expiry worthlessly and you get to keep the entire premium. If its ITM, then the stock will get physically settled.

  248. Rishi Pamnani says:

    The margin requirements for settlement of itm call option whilst client holding a lot of shares in dmat account for physical settlement is not justified

  249. Sudan says:

    Hi,

    I own 600 shares of tech mahindra. On 4th August I decided to write 1380 CE which was the last available option contract.
    Tech Mahindra has shot up to 1380.
    This caused my OTM to become ITM. Now I See contracts till 1520 CE available? I would have liked to written 1500 CE and instead of 1380 CE.

    How is this possible that they just add new contracts in the middle of the month. Isn’t the process 30 : 1 : 30??

  250. Sudan says:

    Hello Karthik.

    Technically I got stuck as I would have liked to have written a 1500 CE but instead I had to settle with 1380 CE while 1500 CE was not available.

    So is there a way around this?

    • Karthik Rangappa says:

      The introduction of new strikes is very dynamic, but unless the stock moves by a lot of % points, new strikes don’t get added.

  251. Sushil Kumar Singhal says:

    Sir, If i have lot of Heromotoco share in my demat account at price of Rs.2900/- per share & spot is price is Rs.2770/- ​
    If i sell 1 lot of ITM Heromotoco PE of August strike price 2900 & sell 1 lot of August Future of Heromotoco at current spot price.
    In situation
    (1) If price of Heromotoco close at Rs.2900/-
    (2)If price of Heromotoco close in between Rs.2770 to Rs.2900/-
    (3)If price of Heromotoco close below Rs. 2770/-
    Should if i have take delivery or give delivery in above condition & at what i have to bear loss.

    • Karthik Rangappa says:

      1) Option is worthless, futures will be settled physically
      2) Sell PUT will be off set with short futures
      3) Same as above

  252. SUSHIL KUMAR SINGHAL says:

    Sir, in answer no.2 of above my query no.2, you have said that Sell PUT will be off set with short futures, in it I have loss or I can retain full premium I have received by selling Put, please sir

    • Karthik Rangappa says:

      Offset means only the physical delivery obligation will be offset. If you have losses, it will obviously be settled accordingly.

  253. Anmol says:

    1. I want to know about indices how it can be settled on expiry date? Because shares will be delivered to us but i want to know how the indices will be treated?
    2. In case of buying an options the premium paid is the ultimate risk only. Suppose i bought Nifty 17000ce & on expiry it’s 16900 so I’m not eligible to exercise my rights hence the premium paid is my loss only right?
    3. Suppose i bought SBI 400pe & on expiry it’s 410 so I’m not eligible to exercise my rights hence the premium paid is my loss only right?
    Hence no need to take physical delivery of shares right?
    & If goes 390 it’s my profit what if I don’t want to take physical delivery of shares?

    • Karthik Rangappa says:

      1) Indices are cash-settled
      2) Yes, that’s correct
      3) Yes, that’s correct

      If it goes to 390, then 400 PE is ITM, hence there will be physical delivery. In this case you will have to take delivery of stock.

  254. Suresh says:

    Hello Sir,

    I hope you are well.

    You have mentioned multiple times that you prefer to sell monthly options than weekly.
    Do you usually sell near month or far month?
    Second using the volatility and standard deviation method how far do you write an option if you are writing monthly options?

  255. Suresh says:

    Hello Sir,
    For writing Far month options, what kind of SD do you use?
    2-3 SD away?

  256. Saurabh Ghosh says:

    Hey
    I wanted to buy JUBLFOOD 4000CE AT 40RS ON 18/08/21 and thankfully it went 200 but when when I see selling needs margin 4lkh and buying need 400% margin all for 1 lot.

    So when i sell this option what if I don’t have any margin amount then how do I square off.

    2.This JUBLFOOD ce option margin required increased 20/08/21 whereas it should be 24 or Monday of the last week. Why so?

    3.I don’t want to pay any short delivery penalty or paying any kind of margin extra so how to pay safe to avoid such scenario.

    Thanks

    • Karthik Rangappa says:

      1) Margin is required for fresh short positions, not for square off (but depends on your other positions as well)
      2) Margin is a function of volatility. Please check the order form for the latest values
      3) YOu just have to ensure there is sufficient margins, Saurabh.

  257. Saurabh Ghosh says:

    1.Assuming I don’t have any other position just one buy position at 40rs and now when I want to sell do i need margin during square off.

    2.Isn’t margin required only for physical settlement during last week only for buy position.

    3.i don’t have mahin except the premium i paid for buying that position then what’s the safest way to sell to avoid such margin situation

    • Karthik Rangappa says:

      1) No, not needed
      2) No, its required for a sell position as well. But additionally, you need to ensure stocks are available for delivery
      3) Its best if you exit the position before expiry to avoid physical delivery.

  258. Saurabh Ghosh says:

    So this is what I understood

    If I have already position its better to exit before the last week of expiry for stress free, margin free trade, am i right?

  259. aryan jain says:

    if at expiry i have a itm put option, how will that be settled? does that mean that when i buy the long itm put options i will be provided with shares and have to sell them at expiry? If so then at what prices would the shares be provided and have to be sold?

    ALSO, if i buy long call in the week of expiry and settle before expiry, will i be required to still have the margin??

    • Karthik Rangappa says:

      If you have a long ITM PUT, then you are required to give delivery of shares.
      If you have a short ITM PUT, then you are required to take delivery of shares.
      Shares will be transacted at the strike price.
      Yes, margins will be required.

  260. Suresh says:

    Hello Sir,

    If I am writing monthly contracts 2-3 SD away, If I keep a tight spread I would max net 100-200 for 5 lots.

    Do I need to keep a larger spread for such a case?

  261. aryan jain says:

    to give the delivery of shares in case of long itm put, i will have to buy the shares myself or will the broker take care of it? Also if i buy the shares myself when should i buy them(at what price, and what date, ie, time before expiry)? while giving the delivery of the shares, will they automatically be sold at strike price?

  262. Madrid says:

    This won’t do anything to option intraday trader right , they don’t need to worry about settlement
    As they are buying and selling at same day ..?

  263. Suresh says:

    Hello Sir,

    I hope you are well.

    I am still confused about a few things.

    1) When writing monthly option contracts 2-3 SD, do you keep tight spreads or large spreads?? Tight spreads do not have much actual gain and there are no chance of adjusting the position if anything ever goes wrong. Larger spreads require a larger amount of margin and have a theoretical larger loss.

    2) Writing monthly contracts are positional plays correct? Time decay is very less, so the only gain one would get is if the market moves in direction of your contract?
    3) Assuming Nifty is 16000 currently, I have written 15000 CE and 14500 CE for protection monthly contracts at the start of the month. My max profit is maybe 6-7 thousand and currently I am getting 4 thousand with roughly 15 days till expiry. Should one exit the position? Then how should I make a new position, in the same monthly contract with slightly higher up contracts like 15200 CE/14700CE or just the next month contract?

    • Karthik Rangappa says:

      1) Depends on when you do this. Early in the series, you can expand the spread for a larger payoff. But yes, margins may increase a bit
      2) Yes, but time decay accelerates towards expiry
      3) YOu exit and take 4K if you see other attractive opportunities in the market. BAsically, this is dependent on your overall portfolio position.

  264. Satheesh says:

    I am holding a Iron condor for stock option contract.
    On expiry, if underlying stays between 2 legs of put contacts, how is the settlement procedure.
    long put becomes OTM, so it expires worthless.
    What happens to ITM short put contract. How is it settled. Do I have to give delivery mandatory ? or does exchange
    try to map to any other person’s ITM long put option in same series ?

  265. Anup says:

    hi Karthik,
    Thanks for explanation, in the case I have sold a call option for stock and I dont have stocks to settle in my demat account and in this case how does settlement happen? Can you please explain

  266. Ashish says:

    I have a long future of an equity and a otm long put of same equity with same expiries and same lots. I was unable to exit at expiry. Is physical settlement necessary in this scenario?

  267. Siva says:

    Hi Team,

    Due to network issues, I am unable to exit from put option yesterday for IDFCFIRSTB. Could you please help in exiting (squaring off) from this F&O stock as there is no sufficient margin in my account.

    Thanks
    Siva

  268. Suresh says:

    Hello Sir,

    As mentioned I have written 1-2 SD away nifty options. I have written 16000 PE and bought 15500 PE. I have written 4 lots for a max profit of 2 thousand for September 9th expiry.

    My issue is that isn’t it risky to write 4 lots? or even 1 Lot? 1 lot has a contract value of roughly 50*16000= Rs. 8,00,000 so I have written essentially 24,00,000 worth value.
    Am I over leveraging or how do I assess this?

  269. Himanshu says:

    I did not settle my short futures on the day of expiry and now I need to physically deliver the shares to settle. How to physically deliver the shares? Does it mean I have to buy the shares and then sell? Or I have to buy the shares and keep in demat account and automatically will be settled by zerodha?

  270. Sunil says:

    Hello Sir,

    Assume I have a portfolio of 1 Cr.

    I have pledged all my stocks to gain margin leverage on them.

    If I choose to write hedged nifty options like 1 -2 SD away. What quantity of my margin should I use and how many lots should I approximately go for?

    If were writing weekly or biweekly nifty options. Due to the new margin rule, hedged options require a less amount of margin.

    • Karthik Rangappa says:

      Sunil, as far as the margins are concerned, you can use up to 50% from the pledged shares. For example, suppose you pledge 1L, and get 50K margin. And then take a position of 1L, then you can use 50K from the collateral margin and another 50% should come from cash. The number of lots should be calculated based on the actual cash available and your risk tolerance.

  271. Sunil says:

    Hello Sir,

    I am confused.

    Do i need cash on hand for holding hedged option positions??
    I have pledged shares, and I have created positions using the margin available. I am using HDFC sec right now.
    They have not blocked cash from my account.

    I am not sure? Have they blocked and I am not aware of it?

    • Karthik Rangappa says:

      Sunil, if both sides are ITM, we charge 40% of the contract value each. But it’s realised on expiry, the positions are netted off.

  272. Arun Antil says:

    How to calculate profit in Netted off positions. For Example I have a position in HDFCAMC which details are following

    Short 2750CE for 205 premium
    Long 2900Ce with premium of 95 Rs

    On expiry HDFCAMC close at 2980.
    My both positions are ITM and hence i will not be liable for physical settlement.
    But i want to know how much i will lose or earn in this position

  273. Suraj says:

    I bought nifty50 call option today and sold it within 5 mins for some profit. When will this profit show up in my account? I am new to stock market, i was curios how option trading works.

  274. Haresh Amin says:

    Does physical delivery happens for USDINR ITM options (sold or bought)?

  275. Anil says:

    I have sold ITC SEP 230 CE for 0.7 premium. If I hold my position till expiry and say at expiry ITC spot value is 212, do I need to have margin of 7,36,000 (230*3200) at the time of expiry to square off?

  276. Anil says:

    Thank you so much sir. I read through all the chapters of Option trade via Varsity and now I am getting the glimpses of actual trade. Just curious to know if there is any virtual trading site/app which doesn’t require real money to practice option trading?

  277. Sachin says:

    Sir if buy pe at 80 and hedge with sell pe 210 if freak trade happen in sell 210 pe and prize goes to 1000 for a less than a second what will happen,

  278. Satheesh says:

    Dear Karthik,
    Excellent compilation and Gratitude to you.
    Regarding OI on stock options, how do we quantify OI as sufficient enough to trade.
    Stock options like Shriram Transport finance have OI in thousands. Call OI: 4721 and Put OI: 1585
    This is too low volume to trade on option contract.
    Can you throw some light on what OI can be considered good enough from liquidity perspective
    and buy sell spread does not pinch for traders.

    • Karthik Rangappa says:

      Generally speaking, the higher the OI, the better is the liquidity, which means its easier to buy and sell the option. To get a perspective of whats a good OI, I’d suggest you look at the OI of a highly traded stock, say TCS or Infy and make an assessment of the option you wish to trade.

  279. S BALASUBRAMANIAN says:

    If i have shares of one lot (1800) of say BPCL in demat and sell BPCL SEP 460 CE. If BPCL crosses say 480, & I didnot square off position as I want to give deliveryof the shares I have in Demat now
    1. What will happen to the premium collected by me for sold call.?
    2. Whether I need to maintain margin and extra margins in the last week? if so why?
    3. Why should I keep magin and extra margins? when already I have shares to hedge?

    • Karthik Rangappa says:

      1) The premium is with you, so your sell price is spot minus the premium
      2) Yes, due to the delivery margins
      3) Like I mentioned, that’s to ensure delivery margins are in place

  280. Ketan says:

    Hello Sir,

    I created a bull put spread in Canara Bank on Monday 13th September.

    On Tuesday or Wednesday I believe Canara Bank MWPL crossed over 95% and it went into the derivative ban period.

    When I wanted to exit my positions on the 17th I was not able to.

    Is there a way to check the MWPL of the company so I can know whether i should enter the company or not? NSE releases data of a company in the ban period most market hours. So how should I know whether I should make a position in this company or not?

  281. Ketan says:

    Hello Sir,

    I wanted to adjust my position and then get out of it but since it became banned I was not able to.

    The margin calculator only shows securities that have become banned. Does it show X security that’s MWPL has crossed over 95% and will become banned the next day or a security that has a high MWPL that will mostly get banned in the coming days?

    • Karthik Rangappa says:

      Ah ok. No new positions are allowed. Also the OI info is not available. I’d suggest you stick to the largest contracts where its unlikely to have such a problem.

  282. Kartik says:

    Sir, if I write an option, I will be required to deposit a certain margin amount like futures. But if after adjusting for MTM, my position falls short of the margin, then to carry forward position to the next day, would I be required to bring an additional margin? Also, how the margin requirements have changed after 1/9/21?

  283. kaushal parashar says:

    if I
    SELL – STAR SEP 600PE
    BUY – STAR SEP FUT (@601)
    SELL – STAR SEP 700CE

    Then if the Scrip closing price is 599 on Monthly Expiry, how many LOTS of STAR should I have to take delivery.
    I think two lots , first lot because the “SEP 600PE” goes ITM and second lot because of the “STAR SEP FUT”.
    Please correct me if I’m wrong. And also please suggest what to do if someone trapped in this type of condition.

  284. Ram says:

    Hi,
    Say I have 1500 SBI and I have used the same as Margin for covered call on SBI. On expiry the covered call in ITM and I am ready to settle the same with my 1500 shares… But Now as I have used the shares for Margin , do I need to keep extra full Margin also untill settlement happens so that the stock get’s released from margin and goes for settlement… How do settlement happen when the same shares are used for Margin and I don’t have extra Margin… ? Pls any one guide me…

    • Karthik Rangappa says:

      You cant use SBI’s position in the spot as margin for cover call. So you will have to have the margins for CE sell before you initiate the position.

  285. Amit says:

    Dear Sir,

    The best thing about a Teacher is that they explain the most complicated things in the most simple way which is what done here by Karthik Sir!! No other comments can explain my gratefulness.
    Simply a BIG THANK YOU😊

    • Karthik Rangappa says:

      Thanks so much for the kind words, Amit 🙂
      I’m glad you liked the content and I hope you continue to enjoy reading on Varsity!

  286. Minakshi says:

    Hi, I have been doing option trading in index and understand the process as it is simple since it is cash settled. I want to start in stock options
    My questions are .
    Reliance is spot price 2350. I have a capital of 5-6 lacs in delay account. I would like to sell CE of say 2470, and get the premium.
    Q1. Now if it goes above 2470, say 2473 then it gets in ITM ? Is that it gets mandatory in ITM , I read the concept of CTM but not able to relate fully here.

    Q2. Assume it is in ITM and I need to give delivery, what is ideal strategy for stock holding ? Should we keep this stock in holding before hand before selling call to be safe or should be accumulate only when we see that stock could end up in ITM? The reason for asking is because if we buy before hand then capital is already invested whereas in second one , the capital is invested when only the situation demands. Just wondering what is a better way.

    Q3. Assume we buy stock first and keep 250 share for safe side, so we used 5.8 L. Now when we sell CE then also margin will be required which is like 1.7 L range?

    Appreciate your response..

    • Karthik Rangappa says:

      1) CTM is close to the money, so options which are ITM but not really deep ITM are all CTM and there is an option to not exercise these options. Hence you can avoid physical delivery
      2) Yes, it is best if you can keep the stock in holding to avoid all sorts of hassles
      3) That’s right. You will have to have enough margins to sell the option

      Good luck, Minakshi.

  287. Minakshi says:

    Thank you Karthik. Can you send me the details as how can I avoid delivery in case when it is CTM. I am assuming it will only decided on settlement day if it is CTM or deep ITM.

  288. Ajinkya Mote says:

    Hello Karthik Sir,

    Few additional chapters have been added in every module like interesting features on trading view, the central pivot range in technical analysis, quick note on physical settlement in option theory and iron condor in option strategies. Unfortunately they are not available in pdf form. Can you please update those in PDF and make available updated PDF so that we can take a print out of it for further studies. It will be a great help. Thanks in anticipation.

  289. Vaibhav says:

    Hello Karthik sir,
    I buy INDUSINDBK SEP 1160CE of 900Qty but on Friday Physical delivery margins are blocked and my available margin is in negative, today I close this trade in postive so how much amount I need to pay.

  290. Manu says:

    If I sell stock options and they are OTM at expiry do I need to give physical delivery.

  291. Minakshi says:

    Hi Karthik,
    Say I have one lot of Reliance (250 shares) in holding and I purchased at 2200.
    Now I sold call of OCT 2600 CE at premium of 62. This means I got premium of 15500 (62*250). Now during expiry it closes at 2650 which means it is ITM, which means I need to give delivery.

    But how does PnL calculation works in this case?
    I mean if I had sold the holding stock in market then I would have got 2650-2200 * 250 which is 112500, but in this case of option settlement since i need to give delivery of stock, it gets deducted from account, which means essentially I am making no much profit except the premium of 15500. Am I getting any benefit of stock price high other than premium?

    • Karthik Rangappa says:

      Here you are giving the stock at 2600 which the same is trading at 2650, which means you have a loss of 50, but since you’ve received a premium of 62, you are kind of covered here. In fact, on paper you make 12. Stike + premium.

  292. Chetan patel says:

    I have sold RBL PUT 200 SEPTEMBER 2021 and not square off on today expiry date. I have enough money to take delivery in trading account of all 2900 share @200 rs.then what to do on my behalf

  293. Shriji says:

    Namaste Sirji,

    Can you explain CTM options and how do I know if my position will get exercised or not?

    If I have created a hedged position in a stock, does zerodha ask me for more margin in the last week?
    a)If both my strikes are ITM?
    b) If both my strikes are OTM?

    • Karthik Rangappa says:

      3 strikes below the settlement price for CE and above the settlement price for PE are considered CTM. So for example a stock settles at 500, then 470, 480, 490 CE are considered CTM. 510, 520, and 530 PE are considered CTM. For traders who are long on these options, exchange gives the broker an option to not exercise these strikes. For short-sellers, a random assignment happens and such assignments are cash-settled.

  294. Shriji says:

    Dear Sir,

    If I am Long PE or long CE and my option expires CTM, why does my broker get to choose if I need to take delivery?? Am I not allowed to choose??

    • Karthik Rangappa says:

      Exchange gives that flexibility to the broker. CTM options do not make any sense exercise as you will end up losing money after factoring in all charges.

  295. Indresh says:

    Now in same example, If I have bought CE and haven’t squared it off till expiry, so the physical delivery which I will get in the form of equity, can I sell those stocks later as a normal trade ?

    • Karthik Rangappa says:

      Yes, so the expiry happens on Thursday, you will get the stocks on Tuesday (T+2), and you can sell the same on Wednesday.

  296. VIRAL SHAH says:

    For netted off position why high brokerage of tune of 10000 or so I charged.

    Can you explain how is that charged.For other broker there is no such charges for netted off position.

    Many a times due to illiquidity in the stock options like to buy ITM put option to square off we create short in future as an example to net off.but then if we end paying such high brokerage it would be better to square off instead of netting off.

    Pls throw some light or explain if some point we missing in understanding.

  297. Arpit Garg says:

    Hi Sir,
    If I already have less than 1 lot of SBI shares at ₹200 and by the time my “Short 260 CE expire ITM”, I further added some shares to make it a total of 1 lot (avg price ₹240).
    1. Will that be enough to give delivery after expiry day?
    2. Should I assume Profit = (260-240)*(Lot size)?
    3. Will there be any penalty/extra charges If I keep the position as-is and want exchange to physically settle the position?

    • Karthik Rangappa says:

      1) Yes, the idea is if your short CE is ITM, then you need to have enough shares in your DP to give delivery.
      2) You will be in profit when the option expires worthless, which means OTM.
      3) No, but delivery brokerage is applicable.

  298. Divyesh Gadhesariya says:

    Dear Sir,

    Suppose I have long ITM call from start of month till expiry. If stock have risen much and If I don’t find any buyer for that call option. So call option will get exersised, but I don’t have margin available. In that case, If I buy long ITM put one or two day before expiry or on the day of expiry, will it work??

  299. Shubhika says:

    Hi Karthik Sir ,
    I have one regarding open interest as we know where there is call unwinding it means call writers are squaring off the position which leads to decrease in OI and rise in price and it’s also assumption that rise in price is temporary. On the other hand OI put in increasing with rise in price that means price is stable but I don’t understand one thing .
    Suppose Call OI ⬇️ price ⬆️ Put OI ⬆️
    so, we can interpret that rise in price is temporary or not , as Call OI is decreasing or Put OI in increasing with respect to price

    • Karthik Rangappa says:

      Call unwinding means writers are buying, and traders who are long are selling off. But yes, in general, what you’ve stated is what is practised.

  300. Shubhika says:

    In above question, how we can predict it is genuine rise in price or it is rise by short covering .

  301. Rajesh R says:

    Hi Karthik,
    I am new to options. I have read your insightful articles ,however I have a very basic query
    If I buy a nifty call option (ATM)for say 29th October expiry on 1st October.
    On 10thOctober it has become a deep ITM option and I wish to book profit by squaring off.
    Now considering these are European call options can I square off before expiry.If yes how does this happen. Do we just chose square off option like share trading?
    In this case I will have to sell the option right.?Does it mean I am a seller of options in the sense explained earlier and what are the risks of such transaction.
    Thanks in advance

    • Karthik Rangappa says:

      Rajesh, yes, you can square off anytime you wish, and it is not necessary that you have to hold your option to expiry.

  302. Ravi says:

    On the expiry day if I have sold both call and put options of the stock of same quantity, Do I have any obligation to take/give delivery?
    In short what are the hedge options for sold call option on expiry day?

    • Karthik Rangappa says:

      If both the stock options are ITM, then yes, the positions will get net off. But if one is ITM and the other is OTM, then no physical delivery for OTM. If both are OTM, nothing to worry about.

  303. Satheesh says:

    How Nifty PUT sold are physically settled with niftybees? Suppose I want to buy niftybees lot at lower price, so I sold nifty OTM PE which expires ITM.
    If I leave it to expiry how will I get niftybees? Nowhere I relate niftybees for this transaction.

    Thanks

  304. Shubhika says:

    Hi ,
    Could you tell me , where can I get PCR and OI chart of current day , like I want data in a chart form and on NSE website option chain data has given in numbers . Is there any free website where we can find OI and PCR in chart form of current day and it chart will update in every 5 mins automatically as option chain data update on every 5 minutes..

  305. Tarun says:

    Hello Sir

    On 21 OCT 2021.

    Nifty closed at 18219. However it settled at 18178.

    Now if someone had bought 18200 CE he should have had gotten Rs. 19 however he ends up losing his money. While someone who had written 18200 PE would lose money correct?

    Is there any way around this? Or something one could do to avoid this?

    • Karthik Rangappa says:

      The closing price is irrelevant here, what matters is the settlement price. So there is no question of losing money based on the closing price.

  306. Indra says:

    Say I have short put of SBI and it has expired on Thursday, so the question is when do I need receive the delivery, Thursday, or by Friday?

  307. lokesh says:

    hello sir, if i had bought 240 call option for itc and the stock closed at 235 for the expiry should i take delivery at 240 per share…similarly if i had bought 3900 put for jublilant foodworks and the stocks closes for the expiry at 4000 should i deliver the shares at 3900 a piece..

  308. Deepam Patel says:

    Hi,

    I bought 1 lot of SBIN OCT 500 CE at Rs 12.50 premium on 21st Oct.

    Here 1 lot of SBI is 1500.

    And if somehow I’m not able to square off my position till expiry and I have take compulsory physical delivery, then I need to have 1500*(500 + 12.50) = Rs 768,750? Here my understanding is correct?

    Thank You

  309. Ajinkya says:

    Hi sir…Assuming I buy one itm call and sell one otm call if on expiry how its settled in following scenario.
    1. itm call which was bough became illiquid till expiry and sold otm call is still otm
    2. Both bought and sold calls are itm and could not close it because of illuiqid long call

    • Karthik Rangappa says:

      1) Liquidity does not matter, as the exchange will ensure your ITM option is settled. OTM is anyway worthless, so it is ok.
      2) They net off each other, whatever difference is cash-settled for you.

  310. Deepam Patel says:

    Sir,

    What happens if I do not have money to buy those shares? Is there any penalty?

  311. Minakshi says:

    Hi Sir,
    I have a question on settlement. Say I have sold Reliance 2560 PE Oct at Rs 20 and I get the premium with me. Now on the expiry day at around 3 PM it is trading at 2500 and let’s say premium has increased to 60.
    1. If I square of at 3 PM, then whatever loss will be there, it will be cash settled? So I am the loss will be something (60-20)*250. Is this right understanding?
    2. Say I am not squaring off, and want to exercise the option. So in this case what shall I need to do? I guess that I just keep 2560*250 as amount and that should be ok? But as the stock is trading at 2500, so do I also need to account for 60*250 additional amount to pay for option premium cost difference?

  312. pranil manjrekar says:

    hi kartik,

    i am new to options. i have query about expiry or settlement.
    1. suppose i bought nifty 18100CE and sold 18300CE how they will get settled on expiry, will they get settled against each other or something else will happen ?
    2.suppose i bought lupin 900PE and sold 870PE how they will get settled on expiry, will they get settled against each other or something else will happen ?
    Note: both with same quantity/lot.

    • Karthik Rangappa says:

      1) Index options are cash-settled. You will get the net settlement amount based on the moneyness of the option
      2) Stock options are physically settled. If both the PE options are ITM i.e. spot price is lower than 870, then both the options will be set off against each other. Otherwise, if both are OTM, then there is no physical settlement. If only 1 option is ITM, then only that option will be physically settled.

  313. Shubgsm says:

    Bought hindalco 500ce oct 28
    Newbie here. How should I go about it?

  314. Sunil KA says:

    Hi Karthik, firstly thanks for answering all our queries.
    I have a simple question.
    To not to become liable for physical delivery. When should I exit from my position? If 28-oct-2021 (thursday) is the expiry of my stock position, on what date should I exit to not to get into physical delivery trouble! Please let me know.

  315. Tarun says:

    Hello Sir,

    I hope you are well.

    I had a question earlier,

    Assuming I had sold nifty 18200 puts last Thursday for 21/10/21 expiry. On 21/10/21 Nifty closed at 18219 while it settled at 18178.

    Assuming I had held on to my puts thinking they would expire worthless at above 18200 I would end up losing 22 points as it settled at 18178.

    This is very confusing and how should one go about this? How do I know what the settlement price would be and that there would be such a large difference between the closing expiry price and final settlement price?

    • Karthik Rangappa says:

      Hence the need to continuously monitor the last 30 mins price and volume. If you see high volume trades at a lower price, then it’s a clear indication that the market will settle lower because of the last 30 min average consideration for close.

  316. Yogesh Salvi says:

    I want to know how the profit and loss generate if I settled buy option contract in cash.
    1.Derivative PNL effect
    2.Cash PNL effect

  317. ramesh chandra says:

    How OTM sold call option is settled at expiry if it is not bought back.

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