Thanks Mohd Faisal for quick reply. Just few more follow-up questions.
Let’s assume that I am short 1280 CALL on Kotak
1a) Kotak trades at 1275. (Non Covered CALL) Despite Kotak is trading closer to the strike, Zerodha will NOT square-off during the expiry day or earlier as long as sufficient span+exposure margin is maintained. Correct?
1b) Kotak trades above 1280 (say around 1320) but I hold equivalent stocks in my demat. Zerodha will not square-off on expiry day or earlier as I can meet delivery obligations. Correct?
Now let’s assume that I am short 1280 PUT on Kotak
2a) Kotak trades at 1285. (OTM) Despite Kotak trades closer to the Strike, Zerodha will not square-off on expiry day or earlier as long as sufficient span+exposure margin is maintained. Correct?
2b) Kotak trades at 1275 (ITM). Though I don’t have sufficient balance in my demat account to pay for stocks, I have sufficient margin balance to meet span+exposure margin requirements. Will Zerodha square-off ONLY on expiry day (Thurs) or can it even do it earlier during expiry week as soon as the Naked PUT becomes ITM? Pls clarify.
If the scrip is trading to close to the strike, the decision to square-off will be at the discretion of our RMS team as you don’t hold the deliverable quantity in your demat a/c. It is ideal you do not take this risk as the cost of auction settlement is high if your position turns ITM and cannot be squared-off.
No, as long as you hold the quantity in your demat and you comply with the margin requirements, your position won’t be squared-off
Correct
We increase the margin requirements starting from Expiry minus 4 days up to 80% of contract value on expiry(Which is higher than SPAN+Exposure). If you fail to maintain these margins, your position can be squared-off any day during the week after a margin call is given to your through Email/SMS.
If I have enough funds in my trading account to hold a short call till expiry and if the same ends up as OTM(which is worthless) it will still be cash settled like before. Correct?
Lets say I hold Hexaware 400 CE and stock price is at 350 around and assume that I shorted Hexaware 400 CE at 3/-… I will get 1500 x 3 = 4500 into my account. Correct?
All these physical settlement rules are applicable only for ITM and nearest ITM calls which are vulnerable/prone to be exercised by buyers. Correct?
SEBI New margin guidelines are to come to effect from the 1st of June and will benefit hedged positions. The margin requirement for all Stock F&O contracts increases 2 days prior to expiry (Wednesday and Thursday of the expiry week) to twice of the exchange mandated SPAN + Exposure margin required.
Is this likely to continue as before? Also is there any change in physical delivery margin for ITM long options
@NIlesh_Gaikwad It is mandated by exchange that for overnight F&O positions 50% of margin should compulsory come in cash and other 50% can come from collateral margin.
@ShubhS9 if i purchase stock through phsyical settlement , when would i able to sell them.
assume tomorrow is expiry so will i be able to sell them by monday
You can sell shares received from physical settlement only after they are credited to your Demat account, Delivery takes 2 working days from expiry, so you will be able to sell on Tuesday, if it is short delivery then it will take 4 working days for stocks to reach your Demat account.
But aren’t all fno contracts still cash settled so long as I remember to square them off well before expiry? Isn’t it just a matter of thinking of it all as the expiry being 4-5 days lesser than the scenario that existed earlier?
Right, Options in India are European Style Options which can only be exercised on expiry, if you square-off your position before expiry there is no obligation to physically settle.
I observed that the physical settlement email was sent only on 23rd June [Wednesday] this month for my short option [OTM ] position.
Is the margin requirement [For short OTM options] for physical settlement now applicable only on expiry day instead of Wednesday and Thursday (expiry day)?
