I want to understand the classic covered call scenario.
Lets say, I buy a FUT and sell a ITM CE option. How will the physical delivery work in this case?
I want to understand the classic covered call scenario.
Only ITM, OTM is worthless.
What if i dont have enough money or shares in my account to get or give delivery of shares on expiry?
I know your RMS team will square off all ITM positions 15 mins before the expiry but what if I have enough shares in account and want to give its delivery?
You can call our support number or can raise a ticket addressing to RMS, do it a day before expiry if you wish to give delivery.
Can we hold these stock call and put options till 3:15 pm of expiry day ?
Because buying Options, it require only premium amount.
I am holding Infosys May Expiry call option.
May i hold this till 3:15 pm of expiry date ?
(Explain for both OTM and ITM option)
0.5 % brokerage ? am i missing something ? r u sure it is /will be HALF PERCENT plus expenses ? why so huge ?
0.5% brokerage is unheard -in this online trading and demat era ! it was there during physical share era !!
Even buy options which are in the money carry an additional margin block. This is charged under a separate head called physical delivery margin. OTM positions won’t have a margin block but once the position becomes ITM, margins will automatically get blocked.
Yes, you can hold it on the expiry date too. However, we stop allowing fresh buy positions for options from Monday of the expiry week.
Just so we are clear, Infosys is cash-settled currently(Will move to physical settlement from October 2019 expiry onwards).
List Of Scrips - Physical Delivery Settlement
This is only for if they are allowed to settle physically, this settlement involves manual interventions and few different processes than usual. Both operationally and compliance intensive.
If i am holding 10 ITM call options till expiry week expecting to square before expiry .
Then ever i have to bring physical delivery margin ?
Isnt it unusual for option buyer who buy in multiple lots & pay small premium amount only.
Then how he could bring margin in lakhs ?
For eg:- Infosys holding 10 lots which are ITM
This means lumpsum addition margin blocked would be 10 lots × 1200(lot size) ×730( price) × 60% (lumpsum % margin) = 53 lakh
Agree but it is huge risk for broker if it has gone for physical delivery. Also if one is holding puts and expire ITM, how can we deliver stocks if client is not holding.
More chances for few ITM strikes to not to have liquidity in last 30 mins of expiry day.
Siva need kind explanation on this. Suppose i buy one lot of put ITM TCS and i do have that lot in my demat. So i sell at strike price on expiry excersing my put. Now spot price on that minute is much lesser so if i buy back immediately from market i take profit.
But next day if spit recovers in gap up i am at loss right? Because whole idea i bought put option is to benefit from spot going below my stike. But next day only i can really buy back from market right?
If for eg reliance industries comes as compulsory physical settlement.
Now if on last day of expiry the option is in ITM but option buyer not able to square off, he must take delivery of that many lots? And obviously he cannot sell that in market immediately? Next day if stock falls whole purpose of buying at strike price is useless right?
Am i missing something? Options will become illiquid towards expiry day? And becoming like futures now?
For put option buyers if ITM should they have that many shares in demat to settle it at strike price? Pardon my ignorance someone explain both call and put from option buyer angle.
@sseth if every considers previous Friday as exit day , that day u will not find counterparty to square off ur bought option. Also let’s say the next week ur option moves ITM deep, u will miss profit right?
@ksksat Let me try to answer your query one by one.
If you buy Calls, you have to take delivery. You need to have Funds in your account to fulfill the buy obligation.
If you buy Puts, you have to give delivery. You need to have stocks equal to the lot size in your account to fulfill the sell obligation.
You need to give delivery of Reliance stocks
Yes liquidity dries up on the expiry week, reasons being higher margin requirement and most brokers don’t allow clients to trade in physical delivery contracts itself.
You can always trade the next month’s contracts.
Yes. The margin block percentage is explained in the Z-connect post.
Yes, it is but that is how its going be given that these contracts will be physically settled. The broker has to pump up margins because liquidity is low and you can end up with the delivery obligation. If its a take delivery obligation, you need to have the funds in your account and in case of give delivery, stocks in your account, which if you don’t will end in short delivery auction where there could be penalty upto 20% of the value of the contract.
You can always start trading in the next months’ contracts.
@MohammedFaisal one imp question . call option buyer deep ITM reliance Ind. I have enough cash in trading account to buy the agreed lots at strike price rate. Spot is way ahead so i want to immediately sell in open market and book the profit.
But it will be 3 30 pm right? What if next day rel gap down below my strike price?
Got my question? Whole deep ITM becomes waste?
If the contract is exercised(You did not square-off before expiry), your buy average will be Strike Price+ Premium you paid.
That will be the loss you have to bear.
Hi Nithin, we used to make small profits and minimal losses on the last four days. With this new rule and zerodha not allowing to buy on the last four days is taking hard toll on us. I guess even the revenue of the zerodha will go down. Take the example of.lupon today 760 CE was at 0.15 touched a high of 8 RS… By when we will be allowed to trade on last four days where we get options cheap