Settlement related query with FNO

[bhaskids]

Hi

I needed some clarifications on margin requirements for a specific scenario involving both futures and options. Lets say that there is a stock with lot size 500 and CMP 200. I have bought current month Futures at 205 and sold ITM call 160 strike price for 210. Since the spread ratio is 1:1, do I need to account for adding additional margin 4-5 days before expiry OR whatever current margin requirements was used is good enough and no additional margin is needed from settlement perspective?

Other question that I had was on the P&L calculation. If the stock closes at 230 on expiry day, will the future’s closing price be determined as 230 only or will future will have a different settlement price?

Thanks!

[ShubhS9]

Additional margin requirement from expiry minus 4 days is only for ITM long stick options.

For futures contract and short options, the margin requirement will increase on the expiry day to 50% of the contract value or 1.5 times NRML margin (whichever is lower). You can learn everything about physical settlement here: What is Zerodha's policy on the physical settlement of equity derivatives on expiry?

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@bhaskids

Other question that I had was on the P&L calculation. If the stock closes at 230 on expiry day, will the future’s closing price be determined as 230 only or will future will have a different settlement price?

On expiry day, the futures contract will be settled at tbe closing price of the spot.

[bhaskids]

@ShubhS9

Even if you hold a hedged position, the margin requirement for Long ITM option will increase from expiry minus 4 days, which you will have to maintain.

Thanks for the details. In the example that I had given, it was a short sell ITM option, not a long position. So for short ITM option, does that still need 50% contract value as margin? I didn’t see anything about it in the link. Can you please clarify?

[ShubhS9]

@bhaskids

@ShubhS9

Even if you hold a hedged position, the margin requirement for Long ITM option will increase from expiry minus 4 days, which you will have to maintain.

Thanks for the details. In the example that I had given, it was a short sell ITM option, not a long position. So for short ITM option, does that still need 50% contract value as margin? I didn’t see anything about it in the link. Can you please clarify?

Ah, my bad. Yes, for short option position the margin requirement will be 50% of the contract value or 1.5 times the NRML margin (whichever is lower), on expiry day.