How does the new physical settlement of stock derivatives work?


#185

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.

Thanks in Advance


#186

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.


#187

Thanks Mohd Faisal.

Is the increase in margin requirements starting from Expiry minus 4 days upto 80% of contract value mandated only for ITM or even OTM / Near TM ?


#188

For option short positions, both ITM/OTM.
For option long positions, only ITM.


#189

Hi…

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?