Do In the money options always get exercised

F&O
1

Let’s say I have done a covered call, and I intend to carry the position till expiry. During the Expiry it turns ITM.

  • What happens in expiry if I there are no buyers - do such case happen ?

  • Example : Let’s say I had written kotak 2000CE for a premium of 50, And it closed at 2010 on expiry, Obviously it is ITM and i have to give delivery , I am ready also. But what if the buyer does not want to buy this shares ( maybe he doesn’t have funds, his margins are blocked elsewhere … ) ?

  • In such case, how the exchange/broker handle the situation? Do ITM options always gets exercised, or I get to keep premium without selling my shares ? Has something like this ever happened ?

2

Buyer cannot just avoid physical settlement. If he did not want delivery he should have exited it before the expiry.
He will get these shares even if he does not have the funds, like there will be a debit balance for which he need to pay some interest. (i think)

3

So ITM means delivery happens from my side no matter what.

4

Yes,

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“Compulsory physical settlement”

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Refer this picture for physical settlement of stock options (ITM) calls and puts.

5

:+1:
Thanks, this i am aware of.
But I was curious to know the story on the other side, what is that poor chap cannot take delivery. :thinking:

6

Poor chap will be left with a negative balance.

1 Like
7

Do check out this post, similar query as yours: Physical settlement of f&o position

8

When the Options are In the Money, then they are bound to be executed. On the other hand, if the options are Out of the Money then, the Option expire worthless.