How does the new physical settlement of stock derivatives work?

[nithin]

@trader29

• How do an option buyer invokes his ‘Do Not Excercise’ Right for ITM options?

• Lets say option buyer let the stock option excercise, BUT Doesn’t have required full security value of the contract, also the stock option is illiquid, no buyers on expiry day! so broker is unable to auto-squareoff. how does that pan out?

• Lets say I am a stock option buyer and a stock option is excercised and funds are debited at 2:00 PM, is the account is earmarked for delivery the same day like normal equity and recieve the security after T+2 days, in that case can we sell off the security received(from earmarked account) under BTST on the particular scrip? As we are an option buyer and as all FnO scrips will be in ‘EQ’ series we should be able to do that right?

1. An option buyer cannot and not on all ITM strikes. Exchanges allow options that are expiring just ITM (where STT is more than the intrinsic value) to not be exercised. Check this post
   NO MORE STT trap on exercised In the money options

2. Depends on what option. If they are calls, there is a forced delivery to your account. If you don’t have the money, the account goes into debit and interest charged on the debit until the stock received can be sold. If puts, a lot more painful. You have to give delivery, but if you don’t have stock, the trade goes to auction and stock bought at auction price and delivered. Check out this post on short delivery.
   Consequences of Short delivery - NSE/BSE – Z-Connect by Zerodha

3. At Zerodha we ask for extra margin for long options 3 days before expiry as delivery margin. Some brokers ask you to square off all long options the previous Thursday itself, even if you have the money. Stocks that are received through exercise, are like normal delivery trades. So comes to your demat on T+2 after expiry. No, you cannot do BTST, you will have to wait for delivery before selling.