All Stock F&O contracts to be settled physically by Oct 2019 expiry

All Stock Futures and Options contracts will be physically settled from October 2019 expiry. Currently, there are 50 stocks that are being physically settled. You can find the list of stocks here.

The transition into physical settled from the current cash mode will be a phased one based on average daily market capitalisation of the stocks. The bottom 50 stocks should be moved by April 2019(the current list already has 50 stocks), the next 50 stocks will be moved by July 2019 and all stock F&O will be physically settled by October 2019 expiry.

Find the SEBI circular here

Read Zerodha’s Policy on compulsory physical delivery derivative contracts here


Are market participants, brokers , institutional investors/hedge funds not opposing this.

They will oppose soon and eventually SEBI will give up.

I am actually in favour of this. This will bring down manipulation done by big players. This benefit will trump any hardships for retailers. Retailers will be the ultimate beneficiary actually, not losers.


hmm… I don’t think so. Physical settlement in stock derivatives is here to stay.


I dont think anyone will oppose, SEBI’s stand is they are bringing it in sync with US markets where this happens.

And this is not a direct move which hits retailers, like the income based restrictions etc. This will hurt indirectly in some option trades retailer takes, but its not so in-your-face that you have retailers doing protests against it lol

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In that case, will this move will drive away retail participants?

How does this effect Covered calls strategies.
Also what will be the impact if we have stocks in demat for making delivery but they are pledged

Looks like it will be simpler to exit all open positions before E-3 days and enter next month series

More simpler risk wise and margin wise also i.e.


Yes already liquidity is very low in derivatives in India specially in options and this will even reduce the liquidity which is their currently.
Increasing fno margin could be handled but this will have very negative impact on option buyers as well as option sellers,however future traders and investors always have option to rollover short or long position to next month contracts but this will drastically affect options traders/investors and eventually option market would suffer.


You need to square-off your short calls before expiry failing which you will have to end up delivering the shares you hold if the position turns in the money. As long as the covered calls remain OTM, there won’t be any delivery obligation.

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Till SEBI changes option exercise style from CE / PE to CA / PA traders can cheer , but soon SEBI will do that till that happens, cheers!!

are you supporting SEBI ? but this will not stop manipulation by big players !! ultimately retail traders will be out of FNO

If anyone carrying “SHORT OTM” call or put, Is this type of position also need extra margin to hold till expiry or it will get auto square-off by broker ?

and, what is exact mean of All OTM options will expire worthless on the day of exipry?

More then retailers or institutions it is about option market overall which would suffer from this.
Also I don’t think liquidity in Indian options is anywhere near to US option markets .
Maybe I could be wrong :blush:

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I don’t think so. People will start squaring off positions before actual expiry day and rollover positions. But the good thing with this is, hopefully this will revive the stock lending and borrowing mechanism in India.


So in a conclusion, positions expiring ITM, only will be physically settle.
Am i right? @MohammedFaisal @nithin

The first 50 stocks with smaller market capitalisation will move toward physical settlement by April this year, the next 50 in July and the next 50 by October. This comes despite a lacklustre Securities Lending and Borrowing (SLB) programme and a lukewarm response to 46 stocks that were moved by the National Stock Exchange of India Ltd (NSE) in April for physical delivery.
source lm

Hi @nithin Good Morning, Stock Option liquidity is very thin in INDIA and by this step it will distribute from current month to near month and may be to far month.
As major Liquidity is in INDEX only and that is too not only from retailers even FII & DII other also.

Any solution for liquidity? :thinking:

Yes, even for Short OTM options, there will be additional margin block. Position will be squared off by the RMS team if there is a shortfall.

If the option is Out of the money on expiry, it will have no intrinsic value(Strike > Spot for CE and Strike < Spot of PE) and will expire worthless. The option buyer will lose all the premium he paid to buy the option contract.

Yes, OTM options will expire worthless and cannot be exercised.