Hello friends, i need help in understanding physical delivery mechanism of current stock option. So, give me guide on this. For this we will take INFY (Infosys) example.
Now, INFY currently at 1974 and i short 1900 pe option at 21 today. Suppose on expiry day INFY closes at 1930 and i keep cash & all required margin money with me in account than what will happen ? Do i get physical delivery and if i get it than at which price ? thanks
In this example the option will expire worthless - and you can keep the premium as the option is OTM. An example is listed here with detailed explanation.
In this case the put expires worthless and you get to keep the premium. Since the premium collected is 21 per share, your breakeven point is 1879. So, even if the share drops till 1879 on expiry you can simply square off the put position for no profit or loss (of course brokerage and other charges apply).
Just in case the put option goes ITM (say price of INFY drops below 1879 on expiry), then you can opt for physical settlement. But, better is to square off the put at a loss and buy the shares directly from the equity market. You’ll save the brokerage needed for physical settlement.
Your are asking whether the Put Option will be exercised.
The answer is NO.
For it to be exercised, Infosys should trade below 1,900 on the expiry day.
Side note: Suppose Infy were to trade below 1,900 on the expiry day, you would keep the INR 21 but have to take the delivery of the Infy lot at 1,900 no matter what the actual price is.
How to calculate margin requirement of stock options in the last week ?
The margin requirement keeps changing dynamically. Zerodha keeps updating it in their system based on the margin demanded by NSE for the stock option position.
There is no direct way to calculate the exact margin needed. It is best to have at least the contract value (strike price * quantity) in cash if you are a stock option seller and would need to be obligated for physical settlement on expiry if the position goes ITM. Naked call selling is not recommended for positional trades. Cash secured puts and covered calls are relatively safer.