Can I choose NOT to exercise an In The Money call option?
I have bought call options for VEDL OCT and if I do not get a seller by expiry date then can I choose NOT to exercise the call option?
If you don’t want to take delivery of underlying shares, you will have to square-off your position. If you don’t, once the Option expires ITM your right will turn into obligation and you will have to take delivery of underlying shares.
You can take a counter position to net-off your obligation. Below are the net-off scenarios.
What if due to some reason (say FnO ban) - I am not able to find a buyer for the given option. If I do not have the margin in the account then what happens?
Also if the expiry happens on say 29 Oct - and say the option converts into obligation. How quickly can I sell the shares delivered to me on 29 Oct?
Can I sell it on 30 Oct?
if the security is in ban period then how/ what to do ?
If you are not able to exit and Option expires ITM, in such scenario you will have to fulfill the obligation.
If you do not have adequate margins to hold your position, RMS will square it off but there can be times when markets are volatile or there are no buyers, in such scenario even RMS will not be able to do so.
Again if your position expires ITM, you will have to fulfill the obligation and also keep adequate funds in your account, failing to do so will result in debit balance, 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.
These shares will be delivered to you on T+2 days, you will be able to sell the shares only after they are delivered to your Demat account.
To know more on physical settlement, you can read this article.
If security is in Ban Period, you will be able to exit your existing position but won’t be able to take fresh position.
So, if you were thinking about taking counter position to net-off your obligation, you will not be able to do so.
(1) BUT , why don’t you opt as below which is as per your policy ?
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.
and
(2) what is the policy rule for the ATM (at the money) strike ? will it be treated as OTM or ITM or CTM ?
Thanks Shubh - very useful.
Am assuming for VEDL - this will happen if the dividend is above 5% - then am assuming all though the delivery will happen t+2 but since the shares were delivered to me on 29 Oct - I will still be eligible for the dividend.
Do not excercise option available only for 3 CTM strikes. Broker will use not to excercise option if any strikes turned ITM at last moment if client don’t have enough margin in their account. It’s responsibility of the client to close their ITM option contracts.
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How to communicate DO NOT EXERCISE option for 3CTM strikes.? and what time we should inform to
Zerodha on expiry day? because only after 3.30pm,we can know THAT our strike is in the 3CTM range.
Broker will decide it based on the clients margin in their account, client doesn’t have that option. It’s better client itself close their position before 3.30 PM on the expiry day.
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The ex-dividend date for Vedanta is Oct 28, as per BSE.
To be eligible for Dividends, you should be buying shares before ex-date, if you buy on or after ex-date you will not be eligible.