How does the new physical settlement of stock derivatives work?

What are the implications for an options buyer here?

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.

I do have the same question !!

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.

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.

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.

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

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

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Thanks Siva

You are right, but considering moneyness, total value will be (strike price* lot size) for options expired ITM.

How this is handled in other developed markets. Is there any alternative other than taking delivery? @nithin

It doesn’t seem to be as alarming as it sounded initially. The 46 securities that are in the SEBI list, I would imagine are ones with low liquidity/low mcap etc. None of the major stocks feature in the list IMO. Full list below

Remaining scrips will follow soon. As per Nithin, possibly by end of year.

So this new physical settlement will not affect your trades, if you close the position before the market close.

A big YES.

One Solution for not taking delivery for a illiquid long call would be to sell a call in another strike, where the liquidity is available, of course making sure that the sold call would be in the money!
I am assuming that the deliveries will be ‘netted’. Is that right? Another point is, do we need to provide full sell margin? Meaning, suppose I have SBI 200 CE, and for selling SBI 260 CE ITM near expiry do we need to provide full sell margin?

If we can wait for few more days exchange will provide full details on this as we have enough time before commencement of physical delivery.

Agreed but isn’t option means I always have an option for paying premium??

Sorry Siva. My question was not clear. I was asking about markets, like in US, how it works.

You had mentioned they already have take/give delivery approach and we are going to follow them. So before our exchanges announces actual workflow, just curious to know how they works.