Policy on settlement of compulsory delivery derivative contracts — Update Oct 2019

What does compulsory physical delivery mean?

As stated in this SEBI circular, starting from July 2018 expiry, F&O positions are being settled moved from cash settlement mode to compulsory physical delivery settlement in a phased manner. Starting from October 2019 expiry, all stock F&O contracts will be compulsorily physically settled. If you hold a position in any Stock F&O contract, at expiry, you will be required to give/take delivery of stocks.

The deliverable quantity is computed as under

    1. Unexpired Futures
      • Long futures shall result in a buy (security receivable) position
      • Short futures shall result in a sell (security deliverable) position
    2. In-the-money call options
      • Long call exercised shall result in a buy (security receivable) position
      • Short call assigned shall result in a sell (security deliverable) position
    3. In-the-money put options
      • Long put exercised shall result in a sell (security deliverable) position
      • Short put assigned shall result in a buy (security receivable) position

The quantity to be delivered/received shall be equivalent to the market lot * the number of contracts that result in a delivery settlement.

This is a significant change to how these contracts were settled earlier – by cash. Also, since most people trading F&O usually have just a small portion of the overall contract value blocked as margins (Futures and Short Options) or premium (Long calls & puts), the actual obligation of taking or giving delivery can be exponentially higher. This increases the risk for us as a brokerage firm significantly. Below is our new policy on physically settled derivative contracts which is part of our broader RMS (Risk Management) policy.

Our policy

Futures and Short Option (Calls & Puts) positions

  • The margin requirement for all Stock F&O contracts will be increased 2 days prior to expiry (Wednesday and Thursday of the expiry week) to twice of the exchange mandated SPAN + Exposure margin required.
  • These margins will be debited on your trading ledger. The increase in exposure margin is to cover for the additional obligation that will arise if these contracts are held until expiry and result in physical settlement.
  • For example, if the margin required for Allahabad Bank futures is normally 25% as SPAN+Exposure of the contract value, it will be 50% of the contract value on Wednesday and Thursday of the expiry week.
  • You can check for the increased margin requirement on our SPAN margin calculator.

Long/Buy option (Calls & Puts) positions

  • There will be a physical delivery margin charged for all In-the-money(ITM) long options. This will be twice the exchange mandated SPAN + Exposure margin charged for the respective futures contract for the same expiry.
  • Exchanges have defined Close to money (CTM) contracts which are a subset of ‘in the money (ITM)’ or contracts that expire with some intrinsic value.
    • For Call Options – 3 ITM options strikes immediately below the final settlement price shall be considered as ‘CTM’. For example, if Wipro contract settles at 243 on expiry day, call options with strike 230, 235, and 240 will be marked as CTM contracts
    • For Put Options – 3 ITM options strikes immediately above the final settlement price shall be considered as ‘CTM’. For example, if Wipro contract settles at 243 on expiry day, put options with strike 245, 250, and 255 will be marked as CTM contracts
  • For long ITM Put options, you will be allowed to carry your position until expiry if you maintain sufficient margins as explained above. An exercised Put option would result in you having to deliver shares to the Exchange. As such,
    • If you hold the shares in your demat account, such shares will be debited towards meeting the Exchange settlement obligation.
    • If you don’t hold the shares in your demat account, you wouldn’t be able to deliver the shares towards the physical delivery obligation, resulting in short delivery. Appropriate auction penalties from the Exchange shall be charged on your account for such short deliveries. Read more on the consequences of short delivery here.

OTM (Out of the money) options are those strikes that are above the final settlement price for calls and below the final settlement price for puts. There won’t be any delivery obligation if your call or put option expires out of the money(OTM).

Policy regarding Close to Money contracts (CTM)

Exchanges have provided an option to not exercise long CTM contracts. We will be using this option on expiry day in case the cash balance and the intrinsic value of the option contract is less than twice the SPAN+Exposure margin (Exchange mandated) required to take a position in the futures contract of the same stock for the current expiry.

For example: If you are long 1 lot of WIPRO Oct 19 240 CE and let it expire and WIPRO(Stock) settles at Rs. 243, this contract will be a CTM contract. The intrinsic value of this contract will be 3 [243-240] x 3200(lot size) = Rs 9600.

Post-market closing we will check if the client’s free balance (Cash balance + Rs 9,600) > Rs 2,76,518 ( Twice the SPAN +Exposure margin for WIPRO Oct future contract). If client balance is lesser than Rs 2,76,518, this position will be marked as “Do not exercise” and the option contract will expire worthless. If the balance is more than the SPAN+Exposure, we will let the option be exercised, resulting in physical delivery. All costs arising out of such delivery obligations will be applied to the client’s account.

In the money contracts (ITM)

All ITM contracts which aren’t CTM will be mandatorily exercised by the exchange. This means that anyone holding an ITM option contract will receive/give delivery of stocks depending on whether one is holding call/put options. All the costs arising out of this delivery obligation will be applied to the client’s account.

Out of the money contracts (OTM)

All OTM options will expire worthless. There will be no delivery obligations arising out of this.

Spread and covered contracts

Spread contracts that result in both – take and give delivery obligation will be netted off for the client. For example, you have a bull call spread of Reliance of the same expiry, a lot of long call options of strike 1300 and a lot of short call options of strike 1320 and the spot expires at 1330, this will result in a net-off and there won’t be any delivery obligation. Here a few cases highlighted below which will result in a net-off of physical delivery obligation for contracts of the same expiry.

1st Leg 2nd Leg
Long Futures Short ITM Call
Long ITM Put
Short Futures Long ITM Call
Short ITM Put
Long ITM Call Short ITM Put
Long 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

Margins will be charged separately on all legs of spread contracts(credit and debit spreads, iron condors, etc) and for covered call positions given the risk on the broker(Zerodha) that you can exit one of the legs of the spread before expiry leading to a physical delivery obligation. You will still continue to receive SPAN margin benefit for the contracts(if any).

Random Assignment of short CTM Position

In case you’ve written an option that expires ‘in the money’ and have left such position to expire, the assignment of such CTM option is done randomly by the Exchange. In the event that your option contract does not get assigned, you are entitled to retain the premium. However, if an option gets assigned to you, you will have to give/receive delivery of stocks depending on whether you have written a call/put option.

Buy/Sell price of the physically settled stocks

The expiry day will be the buy/sell date of the shares that have undergone physical delivery. The buy/sell price for the various cases is as below-

  • Long/short futures- The settlement price on the expiry date will be the buy/sell (average) price of the stocks.
  • Call/Put options – ITM options get exercised but expire at 0 value. The strike price of the contract will be the buy/sell (average) price of the stocks.

Additional costs of physical delivery

  • All positions that result in you receiving delivery of shares will require you to have funds equivalent:
    • For Futures: Settlement Price * Lot Size * Number of lots
    • For Options: Strike Price * Lot Size * Number of lots
  • All positions that result in you having to give delivery of shares will require you to have shares in your demat account equal to the deliverable quantity. In the event that you do not have the required quantity of shares, this settlement would result in a short delivery. Appropriate penalties shall be charged on such short deliveries. This can be as much as 20% or more. Read more on the consequences of short delivery here.
  • Margin penalties will be charged as prescribed by the exchange for all F&O positions(including long options contracts).
  • Since there is a substantial increase in effort and risk to settle these F&O positions resulting in physical delivery, a brokerage of 0.25% of the physically settled value will be charged. For all netted-off positions(spread contracts, iron condor, etc), the brokerage will be charged at 0.1% of the physically settled value.
  • As clarified by the exchange based on the direction of the Hon’ble Bombay High Court, all physically settled contracts(both Futures and Option) will carry an STT levy of 0.1%(applicable for equity delivery trades) of the contract value for both the buyer and the seller of the contract.
  • Interest will be charged at 0.05% per day if your account results in a debit balance when the additional margins are applicable(two days before the expiry day)
  • You are required to bring in funds if your account results in a debit balance after physical delivery failing which the delivered shares will be liquidated to make good of the debit balance. Interest will be charged at 0.05% per day on the debit balance in the account.

Additional Notes

  • All give delivery positions will require you to have the shares equal to the lot size in your demat account during the expiry week failing which it will end up in short delivery. Read the consequences of short delivery here.
  • Stocks received by means of physical settlement can only be sold after receiving delivery of stock in the demat account (2 working days after expiry). In case of a short delivery, the credit of shares will take up to 4 working days after expiry.
  • If you have 2 open positions on expiry that result in a net-off(Long futures and short call options, short put, and short future, etc) you are not required to give or take delivery for the position. However, there will be STT charged on the long position(s) as this is treated as notional delivery.
  • Fresh long option positions will not be allowed on Wednesday and Thursday of the expiry week. Fresh positions will be allowed for futures and options writing contracts throughout the month. The allowed product types are NRML and MIS.
  • You need to have a Zerodha demat account linked to your trading to trade in compulsory delivery contracts. This is to ensure that the stocks are credited in your demat account in the event of physical delivery.
  • The increased margin requirement mentioned above is applicable on Wednesday(Expiry -1 day) and Thursday(Expiry day). If the contract expiry is changed to a different day, the same will be applicable from one day before the expiry day.
  • In the event that you do not fulfill these margin obligations on time, your positions are liable to be squared off. Any loss arising out of such square off would be the sole responsibility of the client. For any reason which our RMS team is not able to square-off a margin shortfall position(s) and leads to compulsory physical delivery, the costs and risks of physical delivery will be applicable to the client.
  • Contracts settled through physical settlement are illiquid closer to expiry. Any losses arising out of liquidation of position(s) with margin shortfall by our RMS team have to be borne by the client. It is advisable for a client to square-off such positions on their own or add funds to carry the position(s) to expiry.
  • This policy may be changed at the discretion of the RMS team.

You can read these NSE FAQ documents – 1 & 2.

With all this in consideration, it is advisable for a client to square off all positions on your own before expiry.

Team Zerodha

India's largest retail brokerage

168 comments

  1. Kanika says:

    In case of Long positions in Options, you’ve mentioned – “There will be a physical delivery margin charged for all In-the-money(ITM) long options. This will be twice the exchange mandated SPAN + Exposure margin charged for the respective futures contract for the same expiry.”

    When is the margin charged? At the time of purchase itself or 2 days before expiry?

  2. Amit Bhalotia says:

    The extra margin for physical delivery can be in pledged security and 50 percent of this is not required to be n cash like it is for span and exposure margin.
    Please confirm.

    • Faisal says:

      Amit,
      The margin reported to the exchange will still be SPAN + Exposure margins(which have to be 50% in cash and 50% pledged). This is charged over and above that and can be fully funded from pledged collateral.

      • vijay k roy says:

        I have fully funded additional margin requirement by Zerodha on account of physical settlement of derivative in Dec series I have been charged interest of Rs 25 each for Dec 24 and 25th Why?

        • vijay k roy says:

          I have fully funded additional margin requirement by Zerodha on account of physical settlement of derivative in Dec series through collateral I have been charged interest of Rs 25 each for Dec 24 and 25th Why?

  3. Bandana singh says:

    Sir can pledge share can be given for physical delivery incase of short sell.pls confirms

    • Faisal says:

      Bandana, you need to unpledge the shares on Thursday before 2 PM(expiry day) to be able to fulfill the physical delivery obligation.

    • NaveenS says:

      Sir I bought call option of 200 CE Exide for Oct expiry on Monday that is 29th Oct and did not sell on 29th. So my position will goto 30th Oct. If i sell my position on 30th(Wednesday) Oct IntheMoney..do i have these implication on margin requirement and physical delivery settlement

      • Ankush Butole says:

        Sir i took one ce position on tuesday.I will closed it on wednesday by keeping approptiate margin.Do i need to take physical delivery of that if i already squared it off?

  4. Neelesh Sharma says:

    Hello, any stock options settled 1 or 2 days before expiry needs physical settlement????
    Is physical settlement applicable only if stock options not settled on expiry date???

  5. Prashant says:

    Is this policy applicable to nifty and bank nifty??

  6. Dipesh says:

    If buying long options in between 4 days of expiry then there would be requirements of premium + applicable margin of 20% or 40% or 60% as prescribed by exchange to avoid short margin penalty.

    • Faisal says:

      Dipesh, entering fresh long options positions will be disallowed from Wednesday of the expiry week. If you have an existing long options positions which is in the money(for which you’ve already paid the premium), the additional margins explained above will be applicable.

      • Vinay Singh Negi says:

        I am holding long future position and tomorrow is future expiry date, can i still settle it through going short or i need to buy the lot?

  7. Dipesh says:

    If have the position in long future & short call position in same contract & at EOD underlying price closes at ATM then it would results in netoff position or would results in delivery???
    SunTv 520 strike CE & underlying closes vat 520
    Have long future positions also

    • Faisal says:

      Dipesh, in this case, since the contract is netted off, there won’t be a physical delivery obligation. This position will be internally set off.

  8. dinesh kumar says:

    Sir, it means any how client have to square off open position call/put 2 days before expiry i.e. by Tuesday in order to avoid extra margin as per sebi rule. Am i correct sir ??? Please confirm.

  9. Dipesh says:

    As per exchange guidelines physical delivery margin would attract from Expiry – 4 days.
    Eg. If expiry lying on Thursday then margin would get charged from positions carry on Friday EOD & which would in increase manner from 20% to 80% till Wednesday.
    It would attract as per below calculation ; Strike price * qty (lots) * (percentage of var+elm+additional margin if any in cash market) * 20% and so on

  10. Alind says:

    Sir
    In the Positions Tab of Kite, is it possible for you to highlight the positions that would attract higher margins near expiry day ? The highlight could be in bold or in different colored instrument name.
    The highlights should change automatically with change in the price of underlying, as the position moves in or out of ITM and CTM position.
    This would help us immensely to focus on taking necessary action on highlighted positions well before enhanced margin requirements kick in.

  11. Sreekar Boddu says:

    If we took delivery on expiry, what will be the tax implication ?
    Will it comes under Short term capital gain (Taxed under 15 %) ?
    or
    Business income (Taxed under normal slab ) ?

  12. Anil says:

    Hello,
    How does this rule impact index option writing for MIS as well as NRML categories? Or there is no impact at all?
    Please clarify.

    Thanks.

  13. Kans says:

    Hi Faisal,

    What if a CALL/PUT contract expires EXACTLY @ ATM?

    • Nitesh says:

      In this case, it will be dealt as CTM (close to money).

    • Faisal says:

      Kans,
      As Nitesh explained, this will be a CTM contract.
      If you have long options, if you fulfill the margin requirements, it will be physically settled. Otherwise, it will be marked as do-not-exercise(you will lose the premium).
      If you’ve written options, depending on the counterparty(the long option buyer), the position will be exercised or not.

  14. DeepWater says:

    Consider a scenario I have short 100 CE of YesBank and YesBank trades around 55 during the last week of expiry. Do I need to have increased margin even if it trades very far out of Money(OTM) ?

  15. Manoj T.K says:

    How will the settlement happen if I have a call option for a stock and I have also sold a put option on the same stock? Lot size is same. Example Bought the Federal Bank 105 call at 0.25. Also sold the 70 put at 0.35.

    • Faisal says:

      Manoj,
      Both long call and short put are take delivery position, you will receive delivery of the shares.
      However, in this case, physical delivery is applicable to the contract which is in the money.

  16. Krishna R M says:

    After supplying the required extra margins to support the trade till expiry day, what would be the cut off time to close the open option trades to avoid physical Delivery process. As long as we close the trade by 3:15, we are not obligated to take the physical delivery , right? Please confirm.

    • Faisal says:

      Krishna,
      Yes, as long as you close the position before market close(3.30 PM), there won’t be any physical delivery obligation.
      Do note that liquidity in most physically settled contracts dries up in the last hour of trading(wide bid-ask spreads, etc).

      • Krishna Mankani says:

        Lets say I have below Short options in Axis bank,
        720 CE Short Oct – one lot
        730 CE Short Oct – One lot
        740 CE Short OCt – One lot.

        The margin calculator shows Span Rs: 3,46,368 + Exposure margin Rs: 2,50,600 which totals up to 5,96, 968 INR. So how much margin I should be having for last 2 days of expiry ( tomorrow and day after ). Is it double the amount of 5,96, 968 INR or more than that?

        NEed your help to understand how much additional funds we should have

  17. Kds says:

    Can you make a video citing examples for this new settlement policy it would be really helpful.

    Prior thanks.

    • Faisal says:

      Kds,

      I have passed this suggestion to our content team. They will take a call on this soon.

      Thanks.

      • sreedhar says:

        Dears,

        I am stuck in the following situation. Could you please help me to understand what is going to happen.
        I am outside of India for time being and I have recently took YESBANK OCT 60 CE option which I am holding still not knowing that its part of mandatory delivery process. I don’t have any funds to take the mandatory delivery, will it be squared off automatically. …please provide inputs asap before market opens tomorrow if possible so that I can act on it if there is any possibility to reduce the loss.

        Thanks a ton…

  18. Ujwal Jaitwar says:

    Is this settlement policy applicable to MCX CrudeOil futures also??

  19. Raj says:

    From earlier margin requirements of 40,50,60 and 80… from Mon-Thurs, what is the new margin rate? Is it 60 and 80 as now its only Wed / Thurs. Pls clarify

  20. Nilesh says:

    Very bad service because mail regarding such policy given on Sunday I. E 27 oct now how can u arrange such margin in short period of time….

    • Faisal says:

      Nilesh,
      Physical delivery margins are being levied from July 2018 for Stock F&O contracts. This update relaxes the margin requirements to the last 2 days before the expiry.

  21. Duryodhan says:

    If margin will charge 2 day before expire then what is the margin % required in this two day.

    As per the sebi circular it’s saying that margin will charge 4 day before like 40, 50, 60 & 80%.So kindly clarify.

  22. M.kumar says:

    What is the implecation on index futures (nifty)..?

  23. Rajat says:

    Is this applicable to index options as well

    • Faisal says:

      Physical delivery is only applicable on Stock F&O. Index F&O continues to remain cash settled.

      • B n yadav says:

        Sir today i bought bank nifty 30100 call at 0.05 paise and bnifty spot closed below 30100 but option settled at 9.35 rs.
        And i didn’t squared off my position ,
        Do i have to pay any charge for this settlement to the exchangs.

  24. Dileep kumar says:

    It is applicable in intraday

  25. pb madhavan says:

    Suppose 500 shares i have in demat account.  I have a short in CE.  I am willing to give those shares against CE. Then how to communicate this to zerodha.  Since this is covered call, communication is automatic or i need to inform separately.  

    Since i already have delivery and inform you, and process is very simple, your delivery charges of 0.5% will still be applicable.   Also please since i have 500 shares in demat account, for shorting CE what margin is required.  It is simple logic since i have those 500 shares in demat account. You should not charge any charge @ 0.5%.  Since it becomes Covered Call.  It should be treated as netted off position and should be charged only @ 0.1% for settlement.  Is my understanding correct.   

    Please mention margin requirement of shorting CE (lot size is 500 only) in reliance against shares lying in demat account 500 shares.  I have equivalent amount of shares in demat account.

    • Faisal says:

      1. The shares will be automatically debited if you have a delivery obligation.
      2. Yes, brokerage will still be charged at 0.5% of the contract valie.
      3. You still need to maintain margins(2 times normal SPAN+ Exposure) for the short ITM call till expiry.

      • Sanjay says:

        @2. Yes, brokerage will still be charged at 0.5% of the contract value.

        What is the contract value here? Can you please clarify? also any other charges for taking/giving delivery?

  26. Abhijeeth says:

    How does this rule impact Nifty and BankNifty options for MIS as well as NRML 

  27. SK says:

    If I buy put and sell before expiry if physical settlement required?

  28. Hemant Jain says:

    I have Nov. 2019 series contracts, although i got this mail? why ?

  29. Colin says:

    In my understanding, there will be no additional margin required for trading in next months options and futures on the expiry day of near month. Also, settlement will only happen on next month expiry. Kindly confirm.

  30. Kushal Kapoor says:

    Hi,

    Will this be applicable to Nifty and bank nifty options as well.

  31. Santosh Kumar Singh says:

    Pls send my username and password than after start buy and sell
    Thanks
    Santosh Kumar Singh

  32. Chandrasekar Pendyala says:

    Financial implications or how the following (eg) Stock Option open position, at the end of the series is treated.

    EXIDE 180 CE, Bought at 2, spot close

    (a) 182/- above and
    (b) 182/- below.

    (Educational purpose) 😅

    • Faisal says:

      Chandrasekhar,
      Your buy price will not have anything to do with the physical settlement except for your P&L calculations.
      If Exide,
      a. closes above 180(the strike price)- The contract will be physically settled, if you have sufficient margins(as illustrated above), you will receive Exide shares equivalent to the lot size.
      b. closes below 180- The contract will expire worthless and you there will no physical settlement obligation.

  33. Suresh says:

    Hi
    One doubt

    If I sell Nifty pe at 50
    And I forgot to close it and it touches 0,
    What is the result
    50 points profit
    Or
    Total amount loss

    Kindly advise

    • Faisal says:

      Suresh,
      To begin with, this policy is for Stock F&O contracts only. Index F&O continues to remain cash settled.
      For your query, since you have shorted the contract, you make a profit of 50 points. You should read this chapter on Varsity to understanding how options writing/shorting works-

  34. Aniket says:

    What happens on Tuesday morning if you have sold a straddle – say 1 lot short of Reliance call option of 1,250 strike and also 1 lot short of Reliance Put option of 1,250 strike.

    • Faisal says:

      Aniket,
      Margin requirements will go up on Wednesday of the expiry week. If either of your position ends up ITM, there will be physical delivery obligations as mentioned above.

  35. Nalini says:

    What happens if the client not maintain sufficient margin on Wednesday morning? Does the RMS Team square off the position on Wednesday? At what time does it square off? Towards the end of the day on Wednesday?

  36. pradeep says:

    cant understand what to do or what not to do pls intimate with details

  37. muthu says:

    i am having only F&O account .i take a stock futures lot suppose i hold it upto expiry date. what may happen ?

  38. A Trader says:

    I have some BUY OTM positions, should I add funds to avoid auto square off ??

    • Faisal says:

      As long as the position is OTM, so there will be no margin block. Once it turns ITM, delivery margin block of 50% of the contract value will apply.

  39. Sourabh says:

    Hi,

    In case if purchase 1 lot(3000 shares) on Tuesday with delivery for Thrusday, along with selling the call option of ITM, will it suffice the requirement of availability of physical units for settlement.

    Thanks

    • Faisal says:

      Sourabh,
      Yes, this will fulfill the delivery obligation. However, you need to maintain margins in your account(2 times the NRML margin) to carry the short ITM call position till expiry.

  40. Raghu says:

    0.5% charge on deliveries arising out of the contract obligation is too high on top of the 0.1% STT. Any chance of reducing this in the future?

    • Faisal says:

      Raghu,

      The high brokerage is charged to disincentivize clients to carry their position to expiry as it adds both an operational overhead as well as the risk of margin shortfall to us(Zerodha).
      It is recommended that you close your position before expiry and move on trading to the next month’s contracts.

  41. Charushila says:

    Will I be sell ITM options on Wednesday?

  42. Kapil says:

    Guys I’m very confused by this stuff as I’m newbie to option trading. Let me give my example, I’ve purchased 1 lot of Yesbank CE 65 today which is trading at 58.10 EOD (Around 2200 rupees) Can I sell that option tomorrow or do I need to maintain balance or exactly what I am suppose to do???
    Please help? If I have to keep funds how much should I keep? Please help me out team zerodha!
    Its real important!

    • Faisal says:

      Kapil,
      Your position is currently OTM, so there is no additional delivery margin blocked. If it remains this way till expiry, there won’t be any physical delivery obligation either.
      If your position turns, ITM(Yes Bank spot above 65) before the expiry, margin block of 50% of the contract value will be applicable. After expiry, you will receive stocks equivalent to the lot size of the contract.

  43. SANJAY SHAH says:

    Please provide phone no , or chat for help regarding options . I have following position.
    Coal put 170 sold
    Nalco -41 pe sold
    Nalco -39 pee buy
    What happened on expiry.

  44. Saroj says:

    At what time does squaring off take place on Wednesday if margin is not maintained?

  45. Akshay Vyavahare says:

    I am holding OTM Put option, still I received the mail that I am holding deliverable option.
    Can I exit tomorrow (30.10.19) ?

    • Faisal says:

      Akshay,
      Yes, there will be no restriction on exiting your open positions.
      You were notified because if your position turns ITM, there will be physical delivery margin block and you can be better prepared for that.

  46. Devendra says:

    Am holding stock Future.
    My understanding that only for stock option sell position in a contract will be compulsory physical delivery. And for Stock future we have to ensure you have sufficient margins to avoid your position being squared off.

  47. Shrikant. says:

    I had buy one put of m&m strike price 610(lot size 1000 for m&m)

    M&M – closes around 611 on today .i.e. tuesday

    Is i needed to add money in the account and how much

    If not have sufficeint fund when my position getting squared off on wednesday

    • Faisal says:

      Shrikant,

      The position is still OTM, so there will be no margin block. Once it turns ITM(below 610), delivery margin block of 50% of the contract value will apply(610*1000*0.5=3,05,000).

      The position will be squared off anytime during the day due to margin shortfall.

  48. Madhusudan says:

    I am long in Asian Paints Oct CE @ 1820….Can I square off my position at the market opening tomorrow I.e. on 30.10.19, Wednesday…?

  49. Abinash Barik says:

    Sir i have a position on bhel 45put which is out of money there is no buyer if I sell that is not selling will i get any charged for the open position
    And i have a another position bhel 60 ce where buyres are available if I sell that on 30th oct my only open position only in bhel 45 pe
    Plz suggest what to do if that put is not sell what will b charges

    • Faisal says:

      Abinash,

      Since your put position is deep OTM, there won’t be any liquidity. Since it is OTM, there won’t be any physical delivery obligation.
      Your BHEL 60 CE is also OTM, so there won’t be any physical delivery obligation. However, if BHEL moves above 60, physical delivery will apply.

  50. Yusuf says:

    Dear sir please advise if my understanding is correct
    1. Wednesday we need to maintain 2x or required margin
    2. Thursday or expiry day we can carry forward the Wednesday position if margin is there on Wednesday right?
    3. On Thursday if we leave the position auto square off by 3.25 is it ok or not
    4. What is physical delivery then ? Quiet confused

    Thanks
    Yusuf

    • Faisal says:

      Yusuf,
      1. Yes
      2. Yes
      3 & 4. If you leave the position open until expiry, the position will be physically settled. Based on the contract, you will have to give or take delivery. If you close the position any time before 3.30, there will be no physical delivery obligation.

  51. Sunil kumar says:

    Today my bob call option got auto square off and i suffer a loss. I buy this option at cash only then why u need 2x margin. As i already paid cash for my purchase value then i dint have further risk, obligation from my as well as your side. Please look into.

    • Faisal says:

      Sunil,

      Due to the cost of physical settlement of stock derivatives margins are increased 2 days before the expiry day. Hence physical delivery margin was levied on Wednesday and Thursday. All clients with physical delivery contracts were notified well in advance over email and SMS about the consequences.

  52. B n yadav says:

    Sir 31 oct i bought bnifty 30100 call at 0.05 pase and i didn’t sell it . It went to auto settlement and settled after closing of market at 9.53 paise and bnifty closed at below 30100 .
    Do i have to pay any settlement charges to exchange.??
    Sir please help me.

  53. Ankush Talwar says:

    Dear Faisal,
    I had a 1 lot short future position in PIDILITIND till 31st Oct. The position is now expired. Please let me know about what happens next.
    1. I has sufficient margin on the last day, I see my opening balance suddenly reduced? why is that? is this how it is going to stay and till when?
    2. what is meant by physical delivery in case of short future positions? When and where do I see the holdings? How do I liquidate the delivery?
    3. what are the next steps that I should take. Should I add funds?
    4. I have read that the last Thursday of every month is the expiry day for that month futures series? Is that correct?

    • Faisal says:

      Ankush,
      1, 2, & 3. Since you had short futures, you have a give delivery obligation of shares. Since you don’t have the shares in your demat account, a short delivery auction margin block is posted to your account. Once the shares are settled from the auction, the margin block will be reversed and the credit of the shares you delivered will be posted(minus the auction penalty).

      4. Yes, last thursday of every month is the expiry day of the monthly futures series.

      • Ankush Talwar says:

        Many thanks Faisal.

        Just one more doubt, quoting this from the forum.

        The entire process:

        a) On T Day Mr. X sells the stock.

        b) On T+2 Mr. X fails to deliver the stock.

        c) On T+2 when the shares are not delivered, the exchange blocks a sum of money from the brokerage’s account which is called “Valuation Debit”. The Valuation Debit is the closing price of the stock on the day preceding the Settlement day (basically, closing value of stock on T+1, as settlement happens on T+2).

        d) On T+2, the exchange conducts the auction and purchases the stock from the auction participants on behalf of the defaulting seller.

        e) On T+3, the exchange gives the shares to the buyer and sends an Auction note to the defaulting broker. The broker then passes on such auction charge to the defaulting client.

        My question is when does the block gets released.

        Regards,
        Ankush

  54. Akshay Vyavahare says:

    What will be the position, if I Buy BN Option in BO on expiry day ? Margin will be increased ?

  55. Saurabh says:

    Hello Faisal,

    Request you to address below queries:
    1.If I have ITM Call option and I am unable to bring the required margin and for some reasons Zerodha couldn’t sqr off before Tursday closing, what are the consequences? i.e. what will be the gain amount to me?
    2. Following Excerpt from above is not clear to me. Whether the client will get any of Rs 9600? or whether you guys will buy and sell simultaneously?

    “For example: If you are long 1 lot of WIPRO Oct 19 240 CE and let it expire and WIPRO(Stock) settles at Rs. 243, this contract will be a CTM contract. The intrinsic value of this contract will be 3 [243-240] x 3200(lot size) = Rs 9600.

    Post-market closing we will check if the client’s free balance (Cash balance + Rs 9,600) > Rs 2,76,518 ( Twice the SPAN +Exposure margin for WIPRO Oct future contract). If client balance is lesser than Rs 2,76,518, this position will be marked as “Do not exercise” and the option contract will expire worthless. If the balance is more than the SPAN+Exposure, we will let the option be exercised, resulting in physical delivery. All costs arising out of such delivery obligations will be applied to the client’s account.”

    Thanks.

    • Faisal says:

      Saurabh,
      1. On Wednesday, when the margin requirement goes up, you can square off the position at the prevailing market price and you will receive the premium. If you don’t square off, our RMS team will close the position due to margin shortfall.
      2. Only after Thursday 3.30 PM, if your position remains open and you don’t have the margins in your account, we will use the CTM option where you will lose the premium(the intrinsic value of the contract).

      • Kans says:

        Hi Faisal,

        In above scenario if the client is fulfilled with the margin by EOD of expiry day then :- By when should the client bring the remaining amount (difference i.e 4,91,482/-) over & above the margin balance for physical delivery?
        Lot size 3200
        CE Strike 240
        Exercise Amt. 3200*240 = 7,68,000/-
        Margin = 2,76,518/-
        Difference = 4,91,482/-

        Thanks,
        Kans

  56. Akshay says:

    Supposed traded (Buy) in BO for BANKNIFTY option on Expiry day.
    While trading it is OTM option & later it becomes ITM option.
    Do I need to pay/keep additional margin ?
    Even if it is ITM options, Can I hold till 3.0 p.m. without additional margin ?

  57. Kans says:

    Hi,
    Please elaborate Zerodha’s policy on below:

    1) What is the procedure if a client (who is sitting in ITM position of a Long Call or Long Put) wish to exercise his/her contract well before expiry (any time before expiry) e.g. 10-15 days before expiry ?

    2) How client should deal if there is early assignment to him/her well before expiry both in case of written Call & Put contracts ?

    Thanks,
    Kans

    • Faisal says:

      Kans,

      1. In India, the type of options traded is European and you can exercise your call or put only on the expiry date. As long as you maintain the increased margin requirements till the expiry date and the position remains ITM, the position will be exercised.

      2. As explained in point 1, there can’t be an early exercise or assignment of F&O contracts traded on NSE.

      • Kans says:

        Hi Faisal,

        So you mean to say the stock options are also European in nature in India?

        Thanks

        • Faisal says:

          Kans,
          There are 2 types of options contracts traded all across the world- American and European. American options can be exercised any time before the expiry, European options are exercised at the end of the expiry period.
          In India, all options contracts traded are European type of options.

  58. Akshay says:

    Hi,

    I have a few question on margin requirement for F&O in the expiry week.

    1.) Will all OR only selected stocks will attract increased margin?
    2.) If the F&O positions are hedged (Long Fut and Short Call), then also increased margin policy applies?
    3.) Does the increased margin apply to out of the money call options also?

    Many thanks in advance.

    • Sarang says:

      What will happen if physical delivery of stock needs to be taken due to new rule of sebi on f&o and there is no funds available in account?

  59. Faisal says:

    Akshay,

    1. Starting from October 2019, all Stock F&O contracts are being physically settled, hence, the margin is increased for all of them.

    2. Yes, increased margins will apply on both the hedged positions, this is due to the risk of the client exiting either one of the legs of the hedged portfolio before expiry leading to physical delivery. However, on expiry, these hedged positions will be netted-off.

    3. For short call OTM options, the margins will increase. For long call OTM options, there won’t be any additional margins as long as the position remains out of the money.

  60. ramesh reddy says:

    Hi Sir,
    AS ZINC NOV future is expiry is on 29th NOV, but why the trading is not allowed from 22nd NOv itself. Please let us know,.

    • Faisal says:

      This post is related to the physical settlement of Stock F&O.
      To answer your query, Zinc is a staggered delivery contract where the tender period kicks in one week before the expiry which is why this is blocked during that period. If the contract is held during the period, it is likely that you will be assigned physical delivery which is why this is not allowed.

  61. Vivek says:

    Hi,
    I have icici 510 ce which today it turned into itm
    And my margin is showing negative now
    Can i close my position tomorrow or is it compulsory to take physical delivery?

  62. sharad gagrani says:

    i have 4400 share of yes bank in my demat a/c.i sold 1 call of 75 and 1 call of 80 dec. contract. at the time of expiary dec. contract what margin will be required

    • Faisal says:

      The additional margin requirements as explained above will be applicable.
      You can pledge the stocks you hold to fulfill the additional margin required.

  63. GOUTHAM says:

    Why OTM options or ATM options we are not able to buy any particular reason we are paying full money and buying zerodha or sebi is not giving money or marigin

    • Faisal says:

      Goutham,
      While you pay the premium, if the option turns ITM, you will be required to give or take delivery, which requires additional margins. This is why these are blocked on Wednesday and Thursday of the expiry week.

  64. PBG says:

    Appears the Risk management team needs a lot of training and in their anxiety do not follow the rules mentioned in this policy.

    • Faisal says:

      The policy is followed by the book by our team.
      You can create a ticket on support.zerodha.com and we will have it checked for any account specific issues.

  65. Shasahnk says:

    In case of long futures , if the fund fall short for physical delivery will it be compulsorily squared off or interest would be charged by zerodha ?

    • Faisal says:

      The RMS team will square off the position as soon as there is a shortfall. If it isn’t squared-off for any reason, yes, interest will be charged on the debit amount.

  66. Rakesh Kothari says:

    on expiry days if i bought a Put in the money and it goes zero how can i square off it and as per exchange
    the buy put is a sell position so what is my auction price or which charges are debited into my account.

  67. raj says:

    For long call options it is mentioned as extra margins start from 2 days before but last expiry extra margins started from monday of expiry week itself..why?

    • Faisal says:

      Raj,

      While we charge margins from Wednesday, the exchange starts margins as a percentage of VaR+ELM of the underlying stocks from Monday (Expiry- 4 days). This is explained in the post above.

  68. Mampi Banerjee says:

    As coming wednesday(25 th Dec) is a trading holiday, increase margin requirement for short stock options on what day? tuesday or thursday

  69. Saurabh Kumar Jha says:

    I have two puts of Idea,
    IDEA DEC 5PE(Lot) and IDEA DEC 4PE(6Lot) and now there are no buyers for for this, please let me know whether it will expire with ZERO value or I have to pay some additional penalty for it.
    I don’t want to do any physical settlement for this.

    Kindly let me know what should I do to avoid any further loss in these options.

    Best Regards,
    Saurabh

  70. Prashant says:

    Hello sir..
    I buy SBIN 330 PE NRML 1 lot on 23/12/2019 and If I close this trade tomorrow on 24/12/2019.
    Is there any marrige required????

  71. Xersis says:

    Para from your article above:
    “OTM (Out of the money) options are those strikes that are above the final settlement price for calls and below the final settlement price for puts. There won’t be any delivery obligation if your call option expires out of the money(OTM).”

    “There won’t be any delivery obligation if your call option expires out of the money(OTM).”
    Why only call option what about Put option? plz update the article by including word put as well.

  72. raj says:

    From friday ownwards in expiry week…for long options are extra margins charged EOD ad not real time?

    As when placing order it just shows that the total premium needs to be paid and no other margin.

    • Faisal says:

      Raj,
      If you take an OTM options long position, only premium will be charged. Additional margins will kick in if the position turns ITM.

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