Expiry Penalty in Spread

If you have a Spread created in a stock, and on expiry day Buy leg becomes ITM and Sell leg is OTM, will there be penalty if you do not close the position?

Similarly, if both buy and sell legs of Spread become ITM, will there be any penalty if position not closed on expiry?


The margin is increased progressively from the last week of expiry. So, you’ll need almost 50% margin to hold your spread on expiry.

If buy of ce (or sell pe) is itm, you’ll have to take delivery. If buy pe (or sell ce) is itm, you’ll have to sell the shares ( if you don’t have any in holding, they will be bought for you at auction and given for delivery).

If both legs pe&pe or ce&ce are itm, they essentially cancel each other and will be settled by cash.


Thank you Ashwin. That really helped me clear my doubts.


There is no penalty for letting your positions expire. However, since the stock options are physically settled, in the first scenario where buy leg expires ITM and sell leg OTM. You will have to give/take delivery of underlying shares for buy leg. While the sell leg will expire worthless.

For taking delivery of shares, you need to maintain sufficient funds in your account or this will result in a negative balance, which attracts interest at 0.05% per day.

Also, for giving delivery of shares, you need to maintain a sufficient quantity in your account (Lot Size * Number of lots held). In case you don’t have enough shares, this will result in a short delivery and an auction penalty will be applicable. You can learn more about short delivery here: What is short delivery and what are its consequences?

In the second scenario, as both legs expire ITM, the take/give delivery obligations will be netted-off, which means you won’t have to give or take delivery of underlying shares.

You can learn more on physical settlement here: What is Zerodha's policy on the physical settlement of equity derivatives on expiry?