Wanted to quickly describe my experience with physical delivery last month, if nothing but a gentle warning to other traders.
I had sold Berger Paints 510 CE for like Rs 5 premium, and held onto squaring it off till the very last day. On the last hour of the day, there was an obvious operator play and the price increased to 532 in the last 30ish minutes. It was super obvious that it was done to trap option sellers like me, especially with the super low volumes traded.
Long story short, I wasn’t able to square off my call option and it went into physical delivery. I called up Zerodha multiple times to figure out the base price and date for the auction, and was worried about the additional 20% penalty that may have increased my losses to around Rs. 2.2 lacs. All this for a premium of like Rs 15k. Thankfully for me, the price of Berger Paints crashed down to below Rs. 500, and i had to give delivery at Rs 510 and not more. I escaped the gallows this time, but it was a bad 4 days worrying about this whole auction thingy.
Gentle advice to all traders:
- Never ever ever let your options (buy or sell) get into physical delivery. It is not worth whatever premium you are getting. Especially in non-nifty stocks, there are huge chances of getting screwed big time.
- Buying an equivalent amount of stock on last Thursday doesn’t help. If you are hell bent on taking physical delivery, make sure you buy the required stock on latest Tuesday.
- Auction happens on T+4 (I have checked with exchange), and the price taken is T+3 EOD price (maybe average of last 30 minutes, I am not sure).
- Even if the stock goes down in case of option writing, your delivery price will be the strike price. You can never gain.
- Whatever happens, you will be hit with a few thousand rupees in brokerage and STT if you go for physical delivery.
My advice to everyone is to not be a fool like me and make sure you square off all your positions on time. Physical delivery is still evolving in India, and it is better to avoid it as far as possible.