Clarification on expiry of Stock Options

[Sameer_Panjwani]

I was reading about compulsory physical delivery of stock options and am a bit confused now about whether I can let my stock options expire or I should try to close them.

I have shorted a 1640 CE and a 1560 PE for Reliance.

1. If price closes at Rs.1620, since both are OTM, I can safely let them expire right without any extra charges?

2. If price closes at Rs.1700 and I’m in loss but still don’t close till the end, will I just pay the loss amount?

3. If I manage to close just one side before expiry because of not getting my price, let’s say I close the 1560 PE but I didn’t get a buyer for the 1640 CE and the stock closes at 1650, how will the physical delivery work on my shorted call position?

[ShubhS9]

@Sameer_Panjwani

If price closes at Rs.1620, since both are OTM, I can safely let them expire right without any extra charges?

You can let them expire.

@Sameer_Panjwani

If price closes at Rs.1700 and I’m in loss but still don’t close till the end, will I just pay the loss amount?

At 1700 your Short 1560PE will expire worthless while your Short 1640CE will expire ITM and you are obliged to give delivery.

@Sameer_Panjwani

If I manage to close just one side before expiry because of not getting my price, let’s say I close the 1560 PE but I didn’t get a buyer for the 1640 CE and the stock closes at 1650, how will the physical delivery work on my shorted call position?

Same as second scenario, your Put will expire worthless while your Call will expire ITM and you are obliged to give delivery.

You can read more on Physical Settlement policy here.