Avoiding Assignment on Short positions

Dear Nithin,

I am a Zerodha member and I need urgent guidance from you for the following scenarios :

Scenario 1)
Lets suppose that today is monthly expiry of September. I have a short call position in Wipro for example which is deep ITM and it is not liquid and I cannot square it off. I am not holding any stocks of Wipro with me. To avoid assignment risk, what are my different options ? Do i take a counter position so that there is no assignment ? Can i open a fresh long futures position in Wipro in September contract for just the last day and let both positions expire on their own ? What can be other alternatives so that I avoid getting assigned ?

Scenario 2)
Lets suppose that today is monthly expiry of September. I have a short put position in Wipro for example which is deep ITM and it is not liquid and i cannot square it off. I do not have enough cash to take delivery of stock. To avoid assignment risk, what are my different options ? Do i take a counter position so that there is no assignment ? Can i open a fresh short futures position in Wipro in September contract for just the last day and let both positions expire on their own? What can be other alternatives so that I avoid getting assigned ?

Your guidance is urgently required. Pls help.
Thanks and regards
Amit

If your Option position is ITM and you are not able to square-off due to lack of liquidity and don’t want physical settlement, then you can take counter position in Futures and let them expire to net-off your obligation.

Below are the Futures - Options net-off scenarios.

TH4JQCYS_Screenshot_208

Other than this, don’t think there is any other alternative.

I have 2 doubts regarding this scenario.

  1. If it’s expiry day isn’t he gonna need 50% of the contract value to take a counter position.

  2. Can’t he buy a counteracting option instead to cancel out exercising of the option?

Yes, margins will be needed to take counter position in Futures, but one would also be getting margin benefit.

Fresh Long Option positions aren’t allowed on last two days of expiry.

That’s what I was thinking but wasn’t sure. Thanks for clarifying.

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Hi Shubh,

If we do not close positions on our own but take position in futures to offset existing in the money positions, what would be the quantum of charges such as brokerage and stt in such a case ? Will we paying more than normal ? If yes, by how much. Can u pls explain in detail ?

If you have 2 open positions on expiry that result in a net-off(Long futures and short call options) 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.

For all netted-off positions, at Zerodha the brokerage will be charged at 0.1% of the physically settled value.

Can read this for more info.

Hi Shubh,

  1. In zerodha, is there any restriction on taking a fresh long or short position in stock futures on the day of expiry?
  2. Can i take a fresh long or short position in stock options on the day of expiry?
  3. Can i enter fresh long or short position in ITM contracts on the day of expiry?

There is no restriction on taking Long or Short position in Stock Futures on day of expiry.

Fresh Long positions in Stock Options isn’t allowed on last two days of expiry, you can take fresh Short position in whichever strike you want to.

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