I had sold a covered call in Reliance at the 2100 strike Feb expiry. Till noon it was trading at around 2080. Due to some prior appointments i was not able to monitor the trade and its gone ITM at end of day.
Now obviously i need to give delivery. I have 500 shares in my demat, so that’s not an issue
My question is regarding the process of delivery
Will the shares be sold by the broker at the strike price ie 2100 and after brokerage the amount that’s due will be credited to my account and are there other hidden charges?
If it were possible is it a better practice to close the position when spot price is close to the sold strike rather than letting it go ITM and ending up in delivery? and then sell the shares myself rather than letting the broker settle them physically?
I am new to zerodha. Are there hidden charges for physical delivery of expired itm options?, I have seen some youtube videos that suggested hidden charges exist in zerodha for such situations. Kindly clarify.
Shares will be delivered to the buyer of the option at strike price, ie. 2100.
There are no hidden charges, we’ve explained about physical settlement and also explained all the charges in detail here:
Hey Vijay, there are no hidden charges. You can check out this article which explains the physical settlement process in detail along with applicable charges.
Thank you @ShubhS9.
So the charges are more for the physical settlement it appears.
- Since there is a substantial increase in effort and risk to settle these F&O positions resulting in physical delivery, a brokerage of 0.25% of the physically settled value will be charged. For all netted-off positions(spread contracts, iron condor, etc), the brokerage will be charged at 0.1% of the physically settled value.
Another question. With the new tpin authorisation rule, how will the sequence of events be if the call seller has to deliver shares? Please advice.
Yes, you’ll have to authorize sell of shares with TPIN, to settle your F&O delivery obligation and ensure there is no short delivery. You can authorize from holdings page.
When to do tpin authorization Shubh? On the expiry day? I am new to this concept. I am lil worried if the shares will be sold off after authorisation and then I will have nothing to deliver for the physical settlement of expiry lol.
You can authorize before beginning of the day on expiry day.
Even if you authorize, shares won’t be sold unless you place sell order.
Since the brokerage is 0.25% for physical settlement of expired itm options, it looks like it might cost a little more if we let it go to physical settlement.
If one has already signed the Power of attorney while opening the account then the broker will just sell the shares and settle the position right? No need for CDSL Tpin?
Right, if you’ve submitted POA then there is no need of TPIN.
What if a client has pledged the whole lot before writing call and use that collateral margin to write a call (to provide 50% of margin required) - how will process work for delivery ? when he had pledged the shares …he already authorized via tpin …now on the day of expiry he has to authorize again …am confused.
In the final week of expiry …margin becomes high …so in such case (pledged the whole lot) how will it work out?
You’ll have to unpledge the shares before expiry.
You’ll have to authorize sell of shares on expiry day.
For physical settlement, as mentioned above, you’ll have to unpledge the shares before expiry. In such case, you’ll have to bring additional funds, or you can pledge other securities and use the margin.