Do Not Exercise - Stopped from March Series

Hi @nithin

Hope you’re well!

I read news that the Do not exercise option for FO has been discontinued from March 2023 series.

  1. How does this effect settlement?

On Varsity’s page on Physical settlement, is section 24.5 still valid?

  1. The concept of CTM no longer exists right? All options are either ITM or OTM only.

Exchanges have introduced net settlement of trades across cash segment and F&O segment upon expiry of F&O contracts from March 2023 expiry, following this they have disconnected the DNE facility.

Have explained about net settlement in this post.

For example: If you have a 1 lot (250 quantity) short futures position in Reliance, you’re required to deliver 250 shares upon expiry. If you don’t hold sufficient shares in your holdings this will result in a short delivery and subsequent auction penalty.

Under the net settlement framework, if you have an open buy position of 250 shares of Reliance in the cash segment, the obligation to give delivery of shares in the F&O segment will be netted-off against this.

Similarly here’s how the net-off scenarios will work out for other positions:

F&O Position F&O obligation upon expiry Cash segment net-off against
Long Futures Take Delivery Open sell position
Short Futures Give Delivery Open buy position
Long ITM Call Take Delivery Open sell position
Short ITM Call Give Delivery Open buy position
Long ITM Put Give Delivery Open buy position
Short ITM Put Take Delivery Open sell position

The net-off of positions across the cash segment and F&O segment is applicable only if you hold positions with the same broker. Also, the net-off will not happen if the trading member (broker) clears trades through a different clearing member.

Yes, this remains the same. If you’re holding multiple contracts of same underlying and of same expiry forming hedge. The obligation of physical settlement will be netted-off.

Yes. Stock options expiring ITM will be physically settled while whose expiring OTM will expire worthless.