Option settlement

General
1

I write a put option for Reliance that is ITM at expiry. How is this settled by Zerodha? Will I be assigned Reliance shares? Similarly, if I am short call options that are ITM at expiry, will I be short Reliance shares?

Noobie

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2

All options in India are cash settled, so what it means is that there is never any exchange of stocks.

It is settled by NSE and not Zerodha.

Assume you short 1100 PE at Rs 30 and Reliance closes at 1090 which is ITM. The theoretical value of 1100PE is Rs 10 after expiry, hence from the Rs 30 you have received by shorting, you have to give back Rs 10 earning you a profit of Rs 20 x lot size.

Similarly if you are short 1100 CE at Rs 20 and market closes at 1050. Theoretical value of the call is Rs 50, so you have to give an additional Rs 30 along with the Rs 20 which you had received while shorting the option making you a loss of Rs 30xlot size.

Hope this helps

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3

Suppose I write a call option of SBIN at 200 Strike price and buy a call at 202.5 I hold it till expiry and now current market price of SBIN is 210 and these became ITM at expiry. How will these settle by Exchange ?

4

Short Call has obligation to Deliver Shares, while Long Call has obligation to Receive Shares, when both Options expire ITM, this obligation will be netted-off against eachother (means you won’t have to Deliver Shares for Short position and Take Delivery of shares for Long position). Any profit or loss arising will be credited to / debited from your account.

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5

Thanks, But are you sure about it? and Please tell me something about charges that I have to pay besides Brokerage.

6

You can read more here.

For netted-off positions, brokerage is 0.1% of the physically settled value.

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7

“The margin requirement for all stock Futures and options contracts will be increased 2 days prior to expiry (Wednesday and Thursday of the expiry week) to twice of the exchange mandated SPAN + Exposure margin required.”

if I write an ITM call option of SBIN at 200 Strike price and buy an ITM call at 202.5, is still I have to manage twice the margin ??

8

Have explained here, how margin reporting will work for hedged positions

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