Physical settlement of stocks

This is regarding stock options and futures. If I buy future of a stock and sell a call option against it. On the day of expiry, if my call becomes in the money and I am not squaring off both contracts till expiry.

In this case, I have to deliver stock regarding settlement of option and take the delivery regarding future. What will be the physical settlement process? Plz explain.

Are there any extra charges if I hold them till expiry? I think there is no STT trap now.

You will have no physical delivery obligation as it will be netted-off. This support page explains this in detail -

Spread and covered contracts

Spread contracts that result in both – take and give delivery obligation will be netted off for the client. For example, you have a bull call spread of Reliance of the same expiry, a lot of long call options of strike 1300 and a lot of short call options of strike 1320 and the spot expires at 1330, this will result in a net-off and there won’t be any delivery obligation. Here a few cases highlighted below which will result in a net-off of physical delivery obligation for contracts of the same expiry.

Trade legs

Margins will be charged separately on all legs of spread contracts(credit and debit spreads, iron condors, etc) and for covered call positions given the risk on the broker(Zerodha) that you can exit one of the legs of the spread before expiry leading to a physical delivery obligation. You will still continue to receive SPAN margin benefit for the contracts(if any).

There will be a 0.1% brokerage charge -

For all netted-off positions(spread contracts, iron condor, etc), the brokerage will be charged at 0.1% of the physically settled value.

1 Like