Physical Delivery of Stocks in Options Spreads

[hrishirajr]

With reference to the following article:

https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/policy-on-physical-settlement

1. Is it good to assume that spreads or covered contracts are not affected by Physical Delivery (assuming it is held till expiry)?

Example:
A Butterfly Spread with
SBIN 650 CE Written
SBIN 650 PE Written
SBIN 700 CE Long
SBIN 600 PE Long

2. Will there be an impact on Margins in the next few days since 31st if the expiry?

[siva]

@hrishirajr

Is it good to assume that spreads or covered contracts are not affected by Physical Delivery (assuming it is held till expiry)?

No, for any ITM long margin will be blocked from wednesday irrespective of covered leg, for short irrespective of moneyness(ITM/OTM) margin will be blocked.

@hrishirajr

Will there be an impact on Margins in the next few days since 31st if the expiry?

Double margins will be blocked from wednesday ie last 1 day to expiry. Check this for detailed info on margins.

[hrishirajr]

Thanks. @siva

My question was also on the lines of a “Physical Delivery”. Assuming a covered position is held till expiry, does this mean that no Physical Delivery risk exists since it is a NetOff?

[siva]

@hrishirajr

Assuming a covered position is held till expiry, does this mean that no Physical Delivery risk exists since it is a NetOff?

It is not a netoff, if it expires ITM you need to deliver your shares, it comes under physical settlement.

[Curious-Investor]

@siva

or any ITM long margin will be blocked from wednesday

Zerodha asks for 50% of contract value on Wednesday and Thursday. Till when do I require to bring the funds if the option turns ITM on Wednesday? As soon as Option turns as ITM or End of the Day? When will Rms team square off my position?

If I convert my position to MIS from NRML ,will I allowed to continue the position till almost EOD?

[NIlesh_Gaikwad]

what if the long and short both are ITM?
then its a netoff right?

[siva]

If same option type and expiry then yes, it is netoff.

[NIlesh_Gaikwad]

thanks Siva for the quick response.
just one more question: What will be the final price of the option? Is it the intrinsic value of the option since my Vertical Spread is Deep ITM and the bid-ask spread is quite large.

[siva]

@NIlesh_Gaikwad

What will be the final price of the option? Is it the intrinsic value of the option since my Vertical Spread is Deep ITM and the bid-ask spread is quite large.

How does it matter with bid and ask once it expired, it will be intrinsic value upon expiry.

[Santhosh_Shankar]

Does this effectively preclude traders from playing Stock Option Spreads for expiry ? Is there any other way ?