Due to physical delivery of stocks for stock F&O contracts, the margin required to trade these contracts increases substantially before the contract expiry.
The policy on physical delivery margins has been tweaked in the following manner :
Futures and options short
|Policy||Margin increase day||Margin amount|
|New Policy||Expiry day (i.e. last Thursday of the month)||Higher of (a) 40% of the contract value or (b) SPAN + Exposure margin prescribed by the exchange|
|Old Policy||Last two days of expiry (i.e. last Wednesday & Thursday of the month)||Two times of the SPAN + Exposure margin prescribed by the exchange|
Assume you are long on 1 lot of Reliance futures and the SPAN + Exposure margin required is 1.10 lacs.
2.20 lacs (i.e. 2 x 1.10 lacs) will be blocked on the last Wednesday and Thursday of the month.
Until the last Wednesday, the normal margins are collected.
On the expiry day, the margin required becomes higher of -
- 40% of contract value = 40% of 250 shares of 2000 each = Rs. 2 lacs
- Span + Exposure margin required by the exchange = Rs. 1.10 lacs
Therefore, Rs. 2 lacs will be blocked as margin on the expiry day of the contract.
There is no change in the physical settlement margin policy for long stock options. 50% of the contract value will be blocked as physical delivery margin for ITM option contracts. There won’t be any margin block for OTM options, and the margin will kick in if the contract turns In the money.
You can check out the complete physical settlement policy on this support article.