I held a put option which was OTM but suddenly became ITM on expiry. I had spoken to my broker on call and asked them to net off the position because i didn’t want physical settlement. The square off of Put was not possible due to lack of liquidity, even though the price was 0.05. So the broker said they can buy futures to cancel out the delivery obligations.
I told them that please do the needful , do whatever you feel is the best option to reduce risk and reduce transaction costs. Then they called me back and said they will observe the movement till 3:20 pm and then decide if futures need to be bought. Because there was a chance the put may become OTM again.
So i saw in my order history. The broker had placed future buy orders at 3:17 pm but it had got rejected by the system.
Now , in contract note, i can see a short delivery (2 lots ).
What could i have done, where was i at fault and what can be the future course of action.
I believe NSE earlier provided a DNE ( do not exercise ) option for purchased options which was withdrawn. Now , i’m not sure about the rules, but i did explicitly ask my broker to not exercise the option. Now i just read some blog posts about similar incidences in the past and i believe it is unfair manipulation / deliberate loopholes to exploit the unknowing.
What was the stock, and the strike price? Maybe on analysis of the last 30 minutes price action, one can suggest better as to what should have been done.
But in general: If you don’t intend to do physical settlement, exit all stock positions well before 3:00 PM on expiry day.
You can also buy stocks on expiry day which will count for your delivery obligations. In fact, you could have tried buying in the post session after 3:40 PM also. But it would have required full margin.
i don’t know if it would be safe to reveal the stock name publicly. But i guess the name and strike price doesn’t matter. But yes, it did become ITM in the last few hours of closing session by a few paisa. But there were no buyers for the sellers to exist, as a result, lot of people ( im guessing mostly retail ) were stuck holding puts that they did not want. There was hardly any volume / buyers after 1 pm . So broker RMS square off failed.
Requires lot of cash to buy delivery. Which most people don’t have. Option buyers are normally poor. There were no sellers in post session.
Ok, it may be a low-volume midcap counter if I may guess. I guess the best way out would have been to buy the countering future position but even that requires extra margins on expiry day, and you would have to calculate the closing price very carefully, because if your option becomes OTM again, then the future position would mean that you need to take delivery.
It is certainly a mess, and if you could not exit for many hours (not just the 3:00 PM - 3:30 PM period), then it is certainly not your fault. Hope the system improves to handle these cases.
It is. They have to give you the same amount of shares. If they don’t have the shares, exchange will conduct an auction and prices in auction market may be significantly higher than current market price.
it’s not low volume, its a large cap , but just the quantity of people having short delivery is very high (still). I believe the auction process would go on till friday, i’m not sure.