How does the new physical settlement of stock derivatives work?


#144

Check out for annexure 1 in this circular. All FAQ’s by NSE.

As per the exchange all positions getting exercised will be considered as delivery trade on that date. So it is like buying/selling stocks in your demat. Online brokers will hence need you to have full money or full stock on the expiry date. Offline brokers might give you time till the next trading day.

But here is the thing, the risks of client defaulting and hence a huge penalty on broker is quite high in this. Therefore, most brokers might be asking for full money/stock 2 days prior.


#145

#146

hi sir
if im holding a stock future contract i must square off on the expiry, can i buy this same stock future Aug contract on 27Aug2018 friday.


#147

You can buy next month contract anytime you want, even today also.


#148

Do I have any obligation for receiving or giving physical delivery if I end up with following scenario at expiry?

  1. Holding 1 lot Long UBL and 1 lot Short UBL 1100CE. The stock settles at 1120 on expiry. Will the two be netted off and therefore cash settled?
  2. Holding 1 lot Short UBL 1100CE and 1 lot Short 1150PE. The stock settles at Rs. 1120 on expiry. Will the two be netted off and therefore cash settled?

Looks like SEBI is determined to keep F&O away from small traders which I think is unfair. Everyone and anyone should be allowed to trade in any segment. Lower the trading lots to 1 like in cash market so that individuals who owns stock can short in derivative market and take advantage of volatility. The more the participation, better for price discovery and lesser chances of price manipulation. If the manipulation still occurs, then SEBI and NSE should go after the manipulators rather than punish small traders who take the risk knowingly in F&O. Just like MF has a standard disclaimer, use the same for F&O. If anyone still enters the F&O arena, it should be assumed that he knows and understands all the risks of trading F&O.


#149

:grinning:

You know, mostly good Bollywood movies are all remake of Hollywood movies. So why not NSE, all they do is copy NYSE/CME.

What would be interesting to see whether SEBI, like other developed markets, offers the liberty to a trader to exercise his/her rights by physical settlement or through a cash-settlement. I think there was some discussion about it. Don’t know whether SEBI is absolutely settling for Physical Settlement with no room for the latter.

May be it will take few more years for our fast growing economy! May be after 2019 elections! May be God knows when like other things!


#150

Hi,

@nithin correct me if i am wrong on 2 things:-

  1. If i am long on options can i take delivery of shares ? or zerodha will compulsorily square off my position?
  2. if i am long in options of a share and i take delivery
    a) in first leg ITM option will be settled and shares will be credited to my demat account on T+2 basis
    b) in second leg i can sell or keep those shares but what will be applicable tax in second leg or both legs will be combined taxed?

Regards,
Wolf


#151
  1. If you are long call, yeah you can take delivery. But you are required to bring in 30% of contract value as delivery margin Tuesday/Wednesday and 50% of contract value as margin on expiry day. The next day remaining 50%.
  2. All options exercised expire at 0. You get the underlying stock at cost of the strike price. Taxes etc applicable only the leg which leads into buying of stock in your demat.

#152

@nithin it would be nice to have a Z-Connect blog on the topic of physical settlement…will be helpful for complete clarification…also the exchange will keep on changing norms and rules every now and then and it’ll be easy to update the blog with imp updates


#153

It’s already there, can check here.


#154

Hi @siva , are you following the same method for listed fno scripts i.e. start squaring off fno positions before 3-4 days or any change in methodology. If I have sufficient shares in demat then I should be permitted to carry short option position till last. You must consider doing something on this. Regards


#155

Hi @siva, can u confirm on the query whether the 3 day prior auto square off is being followed this month also for FNO scrips slated for Physical delivery?


#156

Can check this, if you have margin then you can carry and take physical delivery also.


#157

@siva, Thanks for this, one small doubt, the following is mentioned for “Long Call Option” position

You will be required to maintain at least 50% of the contract value on the expiry day for ITM Call options.

My question - How will you mandate this? If there is not enough margin, will you square off the position on Wednesday EOD? Or it will remain open and then go for penalty post expiry once physical delivery happens.


#158

Hi, under the heading “Futures and Short Option (Calls & Puts) positions” in the abovementioned blog, you have only mentioned about margin but, in case of short call option, the requirement should be availability of required no of underlying shares in demat account. If underlying shares are present in the account then there should not be any requirement of further modified margins. And for safety of individual and zerodha too, required qty of shares may be locked from monday evening till expiry till individual does not square off the short call option.
Regards.


#159


#160

If there is no enough money as mentioned or accordingly shares to deliver, we will try to close it , if we are not able to square off then client will be liable for all penalties arising.


#161

Hi,

What happens if I write a option and want to exercise it on expiry?
a) Shorted Call expiring ITM => I want to sell share i current have
b) Shorted Put expiring ITM => take delevery

Is there any cost benefit in exercising the contract VS. squaring and buying/selling in the market?

In case of taking delivery how soon will the script be in my account so that i may take trade based on it.

Thanks!
Regards.


#162

pls sir say to gov reduce all tax, gst, and stt for flat 20/- rupees per trade as like zerodha. :slight_smile:


#163

Hi,

For ex, stock TCS has a lot size 500 and is in physical settlement list. Below is my scanario.

I am holding TCS 500 shares cash at 2000 cost basis and have shorted 2100 call for 10/-.
I would like to wait till expiry day assuming that TCS will stop somewhere at 2050, so that my 2100 call will be 0 and would like to deliver shares at 2100. Now I have below questions.

  1. Can you(Zerodha) let me wait till expiry before it gets auto squared off?
  2. In what cases system will force square off? I am already having equity. Will it allow me to wait?
  3. If it allows me to wait and I am successful on final day, I will get 500 x 2100 into my account. Am I right?
  4. And do I get the profit of 500 x 10 also?

Please clarify.