Settlement Mechanism for Index Options

Hi,
I wanted to know the mechanism for Index option’s settlement.

In this regard, I want to focus on ITM options of Indices.

For example, if Nifty is trading at 19500 and I buy a 19550 PE at Rs 10.
At expiry , it settles at Rs 50. Would I have to pay for the physical deliveries of all the stock in 1 lot of Nifty or not. Or I get to keep the different (1 Lot * Rs 40).

Similar, if Nifty is trading at 19500 and I short a 19450 CE at 90.
At expiry , it settles at Rs 50. Would I have to pay for the physical deliveries of all the stock in 1 lot of Nifty or not. Or I get to keep the different (1 Lot * Rs 40).

Also, is it necessary to exercise index options ? Could you tell the mechanism for NIFTY, BANKNIFTY, FINNIFTY, MIDCPNIFTY, SENSEX and BANKEX ?

Index options are settled in cash. you are overthinking this one out vicktor reznov.

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The language used in this thread “What happens if the option contract is not squared off on the expiry date?” by Zerodha was a bit confusing. I just wanted to clarify that.

I read on Zerodha Varsity that options give you the right to exercise on a deal. Nowhere was it written that you will be forced to exercise that right like taking delivery for stocks ITM options which was enforced by SEBI.

Still, Can you give an example of any option strategy which involves ITM options of Indices ?

As all Index options are cash settled. There is no taking/giving delivery whether its ATM/OTM/ITM. But in-case of individual stocks if the strike expires as ITM then physical delivery comes into picture.

You need not to pay for physical delivery of each stock nifty. You will get to keep the 40 rupees