Selling PUT option - exercising

F&O
1

i am selling put option and its in the money for the buyer and the buyer is exercising the contract.

question

a) there is a margin which is on hold by zerodha while i am selling, should i keep the difference amount which is the margin held by zerodha + additional amount in the demat account to receive the shares? or should i keep the full amount additional in the account to receive the share apart from the margin which zerodha has blocked, if so what happens to the held margin by zerodha?

appreciate your help!

2

Options in India are European Style, you can’t exercise them any time, these Options are exercised only on Expiry day.

Also keep in mind Index Options (Nifty and Bank Nifty) are cash settled while Stock Options are Physically Settled.

What you are talking here is about physical delivery, this happens only when your Stock Option expires ITM, and depending on position you hold you are obliged to deliver shares or recieve shares, request you to read this to know more about Physical Settlement.

3

yes i know its European style and i know stocks are physically settled… i will rephrase the question again…

lets say i am shorting 100 PE by locking my margin 20. on the day of expiry stock price goes to 60 and the buyer will exercise it. so my question is should i have the entire 100 rs in my demat or the difference amount 100-20 which is 80 in the demat to take the delivery. as the broker is already holding my margin 20. which is span + exposure .

4

You will need to have additional cash in your account to receive delivery of shares.

@siva-reddy can you clarify this.

5
  1. In case of nifty, can we say all options are naked , because no one will be actually owing underlying nifty , as opposed to stock of company like TCS, IOC etc . Right? ,
  2. If the writer of Nifty PUT option loses money, will buyer of PUT option exercise his position and sell the actual nifty index to writer?
  3. Same like question 2 , but from CALL option writer presepective. If option expires ITM, how will the writer sell Nifty Index to CALL Option buyer as Nifty is not directly tradable.
6

Index Options (Nifty and Bank Nifty) are cash settled, so there is no obligation of delivering or receiving shares on expiry. Any profit / loss made is credited to / debited from your account balance.

8

So, can we say nifty index contracts are naked ? as no one will be actually owing the underlying Nifty.
Kindly elaborate

9

Yes, you can call it so.

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