Stock call Option Carry Forward and Exit Square off Doubt

Hi all,

I have a doubt with regards to physical settlement of Stock Option contract.

Assume I bought two lots (1010 shares) of Reliance 2200 CE on Monday the premium is some 50 assume.

On Monday to get into the call option position contract I need to pay 1010*50 as premium.

Assume I kept the attribute as MIS and booked and exited the contract when was say 52 within Monday.

Since I exited the contract in the money and much before expiry do i need to account for physical delivery of stocks n or any other penalty…

Query 2

I know NRML attribute while option booking is for carry forward of option position, so if I carry forward the call option do I need to pay any extra charges or maintain extra margin? Or the initial premium deposit to get into the position is enough?

If I exited the contract three days later with a profit in premium does physical delivery happen.

Query - 3

These stock option positions can be exited like index contracts rights but can anyone please what I shud do go avoid physical delivery of shares or when physical settlement exactly happens?

Sincere Thanks and Regards…

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No, there is no obligation of physical delivery of underlying for you and there are no penalties either.

As an Option buyer you only need to pay the premium, there is no additional margin to carry forward your position.

No physical delivery.

Physical settlement happens only on expiry day and only if your Option position expires ITM. Before that you can trade the Options normally, there is no obligation of physical settlement.

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Thanks a lot sir.

Case- 1

So on Monday if I purchase (book with MIS attribute) a Reliance CE 2200 at a premium 30 (2 lots amounting to 1010 shares) so premium is:

1010*30= 30,300

Immediately due to some events happening, the premium increases to 50.

so,

1010*50=50,500

The difference is the profit on Monday minus brokerage, tax, SEBI fees etc.

“The profit+ and the premium gets immediately credited? just like in index option right?”

Is there an option given in KITE apart from exit, like exercise (wherein exercise might mean physical delivery), exit means exiting from the contract with no physical settlement obligations whatsover, right?

Case-2

I booked same option with NRML attribute and next day or two days later it becomes 50 or 70, so the same logic of exiting the contract in the money is applied and thereby no question of physical settlement.

Query

Is it like i take the contract till last week or two days before expiry that physical settlement happens (if its ITM) and or if there is any exercise button enabled on the GUI?

Thanks so much on your patient replies and I am grateful for your query resolution.

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Right.

When you exit, you are squaring-off your position, you don’t have to worry about physical settlement.

Right.

Physical settlement only happens when the contract expires (on expiry day, when market closes at 3:30 PM) and for that it has to expire ITM. Before that you can take position and exit anytime without worrying about physical settlement.

Thanks so much sir

2 Likes

So I enter into a position on Day 1 and get some profit and exit or I carry forward the position book profits and then exit, this absolutely means I no longer have any association with position or contract right ( after exiting)

Similarly, post exiting the contract, I am no longer obligated for any physical delivery of shares on expirybor post expiry day settlement since my premium plus profit or less gets credited on T+1 days.

Do I have to maintain any extra cash position post exiting the contract even in profit or loss (stock option contract)?

Thanks sir

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Right, once you exit your position, you have no association with that contract whatsoever.

Right.

You do not have to maintain any extra cash, maybe just enough cash to pay brokerage and other charges.

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Thanks so much sir.

If I enter into the call or put option contract with MIS attribute, then I need to exit the position the same day.

If I enter with NRML attribute can I exit same day, anyday until expiry?

What happens if I exit OTM on expiry ( iguess no physical delivery and premium is lost), how about ATM and ITM scenarios
…

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Yes, MIS order you will have to exit on same day.

Yes.

When you exit your position before expiry, there is no obligation for physical settlement.

In case you are not able to square-off your position. OTM Options expire worthless, so no physical settlement, if your Option expires ITM then there will be physical settlement, you can learn more here.

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Thanks so much sir on your prompt replies-- it was really helpful.

2 Likes

Thanks sir, today I booked one lot (505 shares) Reliance Call Option but it ended in minor loss so I had to exit the contract.

Query 1

I could not book the contract at Market Price ( Kite was throwing a message: illiquid contract…) but I saw the volume was good and so was the Open Interest. Why so?

Query 2

I opted for limit in both purchase and sell orders. I made slight loss (difference in premium*505 at entry an exit) ,I therefore exited the contract.

Why only limit orders are accepted?

Since mine was a slight loss, it must have been out of the money, right?

I would not be charged any penalties or anything, right except brokerage fee n taxes…

Also since i exited the contract there is no physical delivery obligation of shares for me right?

Also STT would be very less right?

Query 3

If I had made profit n exited, still there is no physical delivery obligation of shares right?

Query 4

If carry forward the contract Monday with profit till Thursday n then exit then also no physical delivery obligation right?

Thanks and Regards…

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As Stock Options are illiquid, Market Orders aren’t allowed, you will have to place Limit Order.

There will be no additional charges except brokerage and taxes, you can calculate all the charges here.

No physical delivery obligation then as well, Expiry Date for F&O contracts is the last Thursday of every month, you can check the same in Market Depth window.

Untitled

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Thanks so much sir what’s the interpretation of bid and offer sir? No of orders?

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The Bid window in Market Depth tells you how much a buyer is willing to pay to purchase specific security along with quantity, while the Offer window tells you how much the seller wants to sell along with quantity, the Total is total number of Buy and Sell quantities.

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Thanks so much sir…

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Sir, today I had booked a NIFTY Contract with 11700 CE (300 Lots) and end of the Month expiry (Last Thursday of the month)-- it’s a carry forward trade. i had deposited a premium (or margin) of 300* premium price to get into the trade.

Are there any SPAN etc or other charges that might be levied? or any other charges after exiting the trade apart from brokerage and taxes?

Secondly,

Sir, is there any excel link or a site wherein I can calculate the delta, gamma etc Options greeks of my Option contracts?

It’s not like I input the parameters into some textboxes, but a list is generated EOD for all contracts that had traded in good volume on NSE, and also Bank Nifty?

I sincerely thank you.

There is no SPAN and Exposure margin for Long Options trades.

No, there will be no other charges apart from Brokerage and taxes.

You can use Sensibull Option Chain, it has all the Greeks.

Dear sir

Could you please reply on this.
example
12 october 2020 morning i enter a put option 29 oct 2020 expiry
tamotors 130pe at 5.20 MIS attribute**
and i didnt exit that postion (due to some reasons either network connectivity or no buyers of put option at that strike price) consider both scenarios at end of the day what happens if it is ITM or OTM.

how it is settled?

appreciate your reply and much thanks in advance.

If you don’t square-off your MIS position by 3:25 PM, RMS will square it off. If due to high volatility or lack of liquidity RMS isn’t able to square-off, the position will be carry forwarded to the next day, any loss arising from this is responsibility of the client, so it is always better to monitor your position and square-off before time.

Also, physical settlement will happen only on expiry day when Options expire, not before that.

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Thanks a lot sir on the reply.

I have a query, if I book a BANKNIFTY 15th October (weekly) expiry contract with NRML (Normal attribute) today, the trade is carried forwarded until expiry (This Thursday for BANKNIFTY) right, sir?

Secondly,

I know this question has also has to do with Option greeks, time to expiry of the option etc.

But, assuming I book a NIFTY Call Option and Put Option with the same strike price, and relatively liquid contracts, if NIFTY moves up-- we gain from the Call Option but lose from the Put Option and vice versa.

Query–3

If it’s so, then this strategy yields less returns and one has to put in an extra trade for hedging purpose (either Call or Put), but how come this strategy turns out to be successful for at least a few traders?

Query–4

Generally the session 9:00-9:10 AM is pre-market session-- this is used to determine price discovery, execute yesterday AMO orders? What if this session didn’t happen and we directly start trading at 9:15 AM.?

Finally sir,

Whilst choosing an NIFTY, BANKNIFTY (Index Option) what are the most important criteria that need to be kept in mind before proceeding with the trade-- is it OI, Volume, Implied Volatility, Greeks or something else?

I know delta tells the probability of the trade becoming ITM, but still…

Can you elaborate sir?

Thanks and Regards.