How do I sell cash covered put?

Hi Team,

I’m new to this. I wanted to know how I could sell a cash covered put in Zerodha. All I’m able to see is talk about Margins everywhere. I’m ready to put all the cash needed to purchase the underlying shares if it comes to settlement.

Also, if I sell a cash covered put on Nifty & Bank Nifty and if the trade goes in the money and it were to come to settlement? What do I get if I wish to physically settle the transaction by providing cash?

I understand that I can get stocks of underlying equity - in case of stocks but not sure what happens in the case of indices.

Thanks for your time.

Cash secured put means writing (selling/shorting) a put option and at the same time setting aside the cash to buy the stock if assigned.

To take this trade all you have to do is take Short Put position and have adequate funds in your account to take delivery of shares if your position expires ITM.

Margins are required to short options, this requirement can vary from stock to stock. You can easily calculate margin requirements here.

Index Futures and Options are cash settled. Upon expiry, OTM Options will expire worthless, while ITM Options will be settled at Intrinsic Value and any profit or loss you will be making will be credited to / debited from your account.

To learn more about Options, would suggest you read this module on Varsity:

Thank you very much for a detailed explanation! Just to summarize, there is no way to take delivery of NIFTY / BANKNIFTY if the option goes ITM for settlement right? And for stocks, I can take the delivery - right?

Thanks for your time!

Right, there is no concept of physical settlement for Index F&O (Nifty, Bank Nifty, FINNIFTY), these will be cash settled. While, stock F&O are physically settled.

Well, there is a way. If your sold PE comes in the money, buy nifty bees or bank bees of the same amount worth the total contract value. for eg if nifty expires at 13000 and you had sold 13200 pe, so buy nifty bees worth 13000*75 =Rs. 9,75,000.

Hi Anuj_Kaundal, This is again 2 different transactions. right? Niftybees is not mapped with the NIFTY PUT I sold. e.g. I sell 17900 PE at 100 and get prem credit of 5000. it expires ITM (nifty falls to 17900) and prem is 50. , i have cash to take nifty bees lot . Will it happen automatically?

What will happen to the Rs. 5000 credit?
2. Do i need to buy niftybees next day on friday placing an order? What wiill happen to the Rs. 5000 credit?

Thanks.

Hi , This is again 2 different transactions. right? Niftybees is not mapped with the NIFTY PUT I sold. e.g. I sell 17900 PE at 100 and get prem credit of 5000. it expires ITM (nifty falls to 17900) and prem is 50. , i have cash to take nifty bees lot . Will it happen automatically?

What will happen to the Rs. 5000 credit?
2. Do i need to buy niftybees next day on friday placing an order? What wiill happen to the Rs. 5000 credit?

Thanks.

Nifty Options are cash settled. If your Put Option expires ITM, the option will be settled at intrinsic value. You don’t have to take delivery of Nifty Bees.

If the option expires ITM, it’ll be settled at intrinsic value. So for example if Nifty closes at 17890, the Put Option will expire with intrinsic value of Rs. 10, this will be debited from your account and Rs. 90 * Lot Size will be your P&L.