Physical Delivery on Expiry

Hello traders,

I am new to trading world, and so far trying my hands at index trading only. I am always told that if you are into stocks FnO then better to square off positions on last week expiry Monday to avoid any physical delivery troubles. I want some clarifications around physical delivery of shares/equity. All questions are with respect to Zerodha.

  1. How does physical delivery work? I mean, what if I bought OTM CE/PE and it expires OTM. I did not square off CE/PE position, then will it attract any penalty? or will physical delivery come into play here?

  2. If the purchased CE option contract expires ITM, then how does physical delivery work? Do I need to keep sufficient funds in my trading account and Zerodha will automatically credit shares into my account after deducting the required funds? Are there any additional charges/penalty for not squaring off position?

  3. Similarly, for long PE position, if it expires ITM, then do I need to keep shares available in my account and Zerodha will deduct shares from my account assuming I did not square off the position?

  4. Any other important point I need to consider with respect to physical delivery?

Thanks in advance

1 Like

1 No

2 keep sufficient margin/money to get shares delivered. No penalty but zerodha charges brokerage @0.25% plus STT etc.

3 yes, and if u don’t have shares in your demat account you have to go for “auction” for “short delivery” which may cost u 10-20% extra than market price.
Remember that these are applicable for equities, not for index options which are still cash settled.

Zerodha support portal has beautiful articles explaining all what I have shared. U just put your query in google mentioning word zerodha and you will get links: go through them: very informative.

4 Lots of minor things:like CTM contracts you need to either go through the process or read the support articles I mentioned.
Recently I had to get delivery of ITC shares which I didn’t receive even by next Thursday of expiry. I had to create a ticket at zerodha support portal to get a reply that it was as a result of short delivery!

Thanks Arvind. That helps clarify my doubts.

There is no penalty for letting your position expire. As it is OTM, there is no physical settlement obligation. The option will expire worthless and you will lose the entire premium paid.

Again, there is no penalty for letting your position expire.

You will have to maintain sufficient funds in your trading account to take delivery of shares. Upon expiry, the funds will be debited from your account and shares will be credited. There is brokerage applicable for physical delivery at 0.25% on the contract value, plus GTT at 0.1% on the contract value.

Yes, you will have to maintain sufficient shares in your demat account for physical delivery, else it will result in short delivery and appropriate penalties will be applicable. You can learn more about short delivery here:

You can check out all the details on physical settlement here.

1 Like

Thanks Shubh. This gives much needed clarity.