How does the new physical settlement of stock derivatives work?

[siva]

@NewbeeTrader

each lot should have 10L + value.

To buy option, if you have premium amount that is enough, for writing option one need some % of total contract value.

[NewbeeTrader]

@siva

To buy option, if you have premium amount that is enough, for writing option one need some % of total contract value.

I understand that. My concern is on taking delivery of 10 lots on expiry.

And imagine frustration of trader who spends 1000rs in premium forced to spend 1cr fund for taking delivery. This is very disappointing move.

[Divyajeet]

what earlier used to happen before the new circular… can’t we rollover… or best thing to stay away from such situations or to get out

[siva]

@NewbeeTrader

And imagine frustration of trader who spends 1000rs in premium forced to spend 1cr fund for taking delivery.

Buyer is not forced if option expires OTM or if he manages to close the contract before expiry, only problem when he let it expire ITM, also we need to wait few more days to know the exact mechanism.

@NewbeeTrader

This is very disappointing move.

Just to provide some info on this, this is how all advanced(developed) markets function, so we may wish we are moving in the right direction, also this move should hopefully limit operators manipulating stock prices and may help in reviewing SLB ( stock lending and borrowing) market in India, said this initially we may witness less liquidity, higher impact costs but should be sorted in long term.

[Dhruv_JC]

Thanks for writing this bhaiya. Now can you please explain it in layman language? with examples and scenarios if possible

[hotpot64]

@siva

Please explain this current change in context with the STT rule change which happened last year

Here is the link for the topic
STT Rule

It’s getting confusing.

Thanks

[nithin]

@dp1980

Is it possible for anyone/operator to move prices of a stock/futures just by increasing volumes??

I think SEBI may have some guidelines for traders to keep their positions to a limit. for example if i want to create big position in a stock future sebi will allow me only say @ 10% or 20% of the total market wide limit, isn’t it??

another thing is can anyone move the stock price just by trading in F&O?? i mean doesn’t he have to trade in cash to move the stock price as the F&O price are mostly dependent on their underlying stock price.

The open interest limit is per client, per trading member. Operators can take positions using multiple client and trading members. Theoretically yeah stock is the underlying for future, but if more trading volumes are happening on F&O, F&O usually drives the stock price. There will be arbitrageurs anyways ensuring both cash and F&O move in sync.

[nithin]

@Divyajeet

what earlier used to happen before the new circular… can’t we rollover… or best thing to stay away from such situations or to get out

Of course you can rollover - which is exit the current month and take a next month contract. The issue is if you are not able to exit an in the money contract of this month because of liquidity.

[nithin]

@Dhruv_JC

Thanks for writing this bhaiya. Now can you please explain it in layman language? with examples and scenarios if possible

This isn’t a simple thing to explain in layman language. Can you ask me specifically what you didn’t understand?

[nithin]

@hotpot64

Please explain this current change in context with the STT rule change which happened last year

Here is the link for the topic

STT Rule

It’s getting confusing.

Thanks

I am hoping that exchange will continue to have the existing facility of do-not-exercise on close to money contracts (CTM). We will have to wait on exchange clarification on this.

[Dhruv_JC]

What are the implications for an options buyer here?

[p699]

@nithin

I think it will become extremely tough for people trying to manipulate stock prices in such F&O scrips.

If it really curbs manipulation I am for it. But such people can still continue their game in between expiries. It will be interesting to see how this changes the market.
Liquidity will definitely come down from now on. Dont know how brokers will cope with it.

[TIMEFRAME]

@Dhruv_JC

What are the implications for an options buyer here?

I do have the same question !!

[siva]

@Srinivas_Renikindi

I would rather do futures than options in that case.

Only problem is if you let your option expire in the money, you can still trade and close the contract just before expiry if it is ITM.

[nithin]

@Dhruv_JC

What are the implications for an options buyer here?

If you have

1. Bought calls: If options expire in the money and you continue to hold at expiry, you have to bring in the full value of contract in terms of money, and take delivery of the stock.

2. Bought puts: If options expire in the money and you continue to hold at expiry, you have to deliver full value of stocks of the contract on/before expiry+ 2 days.

[siva]

@Dhruv_JC

What are the implications for an options buyer here?

These are already answered at start of the thread, anyhow in brief, if you are option buyer and let it expire on expiry day with out closing then theoritically

Case 1: It expired OTM, worthless, can be ignored

Case 2: It expired ITM, so if it is call option you need to take delivery, for put option you need to give delivery of those stocks.

Also in case 2 practically there can be alternatives so we need to wait for few more days on how exchange is going to set this mechanism.

[viv11]

what will be full value of contract ? As an ex. if i am having a SBI call, which expire at 5 rs… the value of shares that i need to buy will be

1. 5*3000( lot size) = Rs. 15000
   2). sbi share price * 3000= 7-8 Lac rs.

Thanks

[Dhruv_JC]

Thanks. This isn’t applicable to Nifty and Bank nifty correct?

[siva]

@Dhruv_JC

This isn’t applicable to Nifty and Bank nifty correct?

Again, this is answered at the start, anyhow Index derivatives are cash settled only.

[Dhruv_JC]

Thanks Siva