PE Option Sell on Expiry day - Auction

Hi, I had bought BEL share 142 PE as a hedge for Future. On Expiry day, I first sold the Future that got executed but the PE sell @ Market price was placed but was not executed though it closed that day at 141.7. Broker says that there was no buyer and was also not squared off so this will auctioned. Please help me understand this auction process and why PE was not squared off though I had placed order to sell also? Thanks Experts.

You can check out this post which explains short delivery in detail:

To square-off your position, there has to be a buyer willing to buy this option.

Stock Options do not have much liquidity, especially if Option is ITM. So, if there are no buyers to buy, your order remains pending until it is executed.

Thanks for clarification.

On expiry shouldn’t the contract ( PE) be termed as square off? as its expired. why it goes to the Auction? the counter contract should also remained opened ?

Stock F&O are physically settled. As his Long Put Option position has expired ITM, he is obligated to deliver underlying shares, as he doesn’t have the underlying shares to deliver, it will result in short delivery. You can learn more about physical settlement here.

1 Like

So an option buyer is also obligated if in ITM? Hmm…

Yes. You are leaving your position to expire, upon expiry if it is ITM, your Long Option position will be exercised.

1 Like

Ah okay. Makes sense. I was wondering if people think option buyer has no obligation (only choice) on itm, how all option sellers on the other side of trades are obligated since it takes two to tango. It makes sense now.

Thanks for the info, you are always helpful!! Many Thanks

1 Like