My learnings from Physical delivery last month

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.



What was the spot price when you wrote the contract ?

spot was near 489

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Thank you for sharing your experience

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Unfortunate that you had to go thru that. Bad luck.
My understanding is this, I might be wrong also …
If you see the weekly chart you can see that the stock is under distribution for few weeks already. This is proof that big money is at play. How many more stocks they own and for how long will they keep the prices in this range before they empty they shares is difficult to tell. Usually at the top the price spikes and comes back to within range. You got caught up in one of those spikes :frowning:

The classic statement " The market can stay irrational longer than you can stay solvent" came true.

Thanks for narrating your case.

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As told by you that physical delivery is not allowed . so , the broker RMS team will square off the positions in the last week of the expiry ; if not done by the trader himself . ======================== My question is : Suppose ; I sell 1 call option and sell 1 put option of the “xyz scrip” . Now , as per the above scenario , my physical liability virtually becomes nil zero ; even though I let them go for the physical . BUT , the RMS team squares off my call option position and could not sqareoff the put option position due to human / machine / technical error or no volume etc ; ============ Now , in the above case ; why the trader has to bear the risk / loss / damage etc ; if any … ? ====

how did you figured that out? or are you just guessing?

What you can do is take a futures position in the opposite direction right before market close. This will lead to a net off of your positions and there won’t be any physical delivery obligation.


THANKS FOR SHARING… can u pls clarify when u say auction happen on T+4 then is T the expiry day? ie thursday

Yes it is the trader’s loss. Ultimately the responsibility for your money lies with you, I haven’t seen any broker take responsibility for such things, Zerodha or otherwise.

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So Expiry is Thu (T), the actual action happened on Wednesday afternoon (T+4), the floor price taken was Tuesday EOD.

I would request someone from Zerodha to clarify here (@siva maybe). I think this would create two separate positions already altogether and not net off. This is my understanding reading through Zerodha guidelines. I would be super happy to be wrong, as this gives an option to exit gracefully.

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I am guessing based on the price action demonstrated on expiry day (short spurt post 3 pm, very low volumes, higher prices offered even when there was supply available at lower prices), and the subsequent immediate fall for 3 consecutive days which brought the stock down to Rs. 485 levels.

Again, it is my guess. Maybe it was just market operations and I am wrong.


If the two positions are counter to each other and one is leading to give delivery and other to take delivery then it is net off.
As you mentioned broker can’t do anything in these cases, client should act as it is his/her hard earned money.

If you see the weekly chart you can see that the stock is under distribution for few weeks already.
can you explain ths

I wonder why Govt makes such rules. The reasons for making / changing them are never disclosed, let alone discussed. There is complete lack of transparency. They should be stating how actions will benefit the growth of F&O market in India which still tiny compared to international levels.

It was easier to settle with one paying the difference in money to the other. Now they have a process which will work to advantage of big operators. Perhaps the only gain to Govt is STT!

In fact they should be, in my view, encouraging trading of overseas securities in India.


Distribution happening in the highlighted box/range. Weekly chart.

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@siva @nithin Hi Siva, if i understand this correctly, if we have one long and one short position in the money at the time of expiry in FnO, we should only have cash settlement, with no physical delivery , no penalties/no brokerage for physical delivery?
Say I am short itm call of reliance at strike 2300 and long a future at 2310 and the expiry day stock ends at 2340,
I will have to pay rs 10*505 or i will be charged physical delivery charges for both the legs, penalty for not having the stocks?
I tried asking this to zerodha support desk mutliple times but with no avail.

Even with netoff there will be brokerage charged at .25% on both legs.

Shorting may not be guaranteed as the buyer can forgo the premium and seller can keep it entirely with out going for physical delivery. In this case you might end up in buying shares for long futures.