Stock PUT Option ITM Expiry - Illiquid

for expiry settlement, the future close price will be considered same level as spot price. isn’t it. So if spot expired at 449.65, the future settlement price will also be 449.65 for dec expiry.

(The last traded price of future could be different, but for settlement it would be same as spot closing price on last day of expiry).

You are right thanks :smiley:

Very good article related to the recent Hindalco 450 Put Trade Fiasco. Must read for all those who trade in NSE Options. This needs to be fixed ASAP, otherwise similar issue will happen in some other counter, during the next expiry.

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If I sell otm put option and it expired in the money and i have not squred off. If i am ready to take delivery, what will be the charges and what will happen to the margin paid to sell one lot of put option. pls some one explain this.

Blocked Margin will be released after expiry. You will keep the premium and will be assigned shares at strike price. Delivery brokerage will be 0.25% plus taxes .

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will all the margin be released except taxes or the intrinsic value will be deducted from the margin?

If you have required “available cash”, that will be used to buy shares at strike price, and the blocked margin will be released.

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so if i sold a put option of underlying stock at a strike price of 1000. 12 Rs is the premium collected. the stock price expired at 995 and I have funds to take delivery. If i took delivery i will get entire margin paid. what will happened to premium collected? will entire premium go to buyer or only the intrinsic value 5 rs and remaining i will receive?

If it expire 950 do i need to pay 50rs even though i preferred to take delivery?

Whether ITM or OTM , on expiry, premium goes to zero, meaning seller keeps all of it. The concept of put option is tat if price ends below strike, shorter is contracted to buy shares at strike (obv higher than current price) from put buyer.

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this means i no need to give back the premium collected and no margin deducted. i need to pay the money to take delivery based on the strike price?

As per my knowledge otm expiry premium goes to zero but itm expiry premium is equal to intrinsic value. is it right or not?

  1. Yes. You keep the premium after expiry.
  2. Any blocked pledged margin will be reversed . You pay in cash to take delivery.
  3. Premium fluctuates until expiry. But if you have not squared off, then after expiry, premium goes to zero, option seller keeps initial premium collected and it’s all about physical delivery.

@Meher_Smaran @nithin - I want 2 points to be clarified on physical settlement margins.

I see the maximum margin required on expiry day in case of futures or Option writing is Minimum of 1.5 times NRML or 50% of Contract value , Since its minimum out of 2 so in most cases its 1.5 times NRML Margin only which would be 20 to 30 % of contract value.(Ex Reliance) . But in case of option buying margin on expiry day is 50 % on contract value.

Question 1 - why can’t option buying margins be same as option selling on expiry day, say minimum of 1.5 times NRML margin or 50% of contract value. in this way option buying would be at par with option selling on expiry day

Question 2 - primary problem i see is in case of netting of position which are deep in the money with no liquidity. where the primary goal would be to let them expiry and netted off with no delivery obligation. So in netted off positions why can’t the margin required on expiry day be maximum of margin required for either of the legs of netted position , so that if the trader wants to exit one leg he can do and any how you would have blocked the margin for other leg. why to collect margin for both legs.

I understand the issues happened in the past on physical delivery. But i don’t see logic in colecting such high margins in netted off positions. let me take an example.

You have position say 2900 CE buy and 2950 CE sell. on expiry day if stock closes below are above 2900 or 2950 no issue it would be netted off or expire worthless. if it closes in between 2900 CE & 2950 CE it would be single leg where we would have obligation to take delivery and you have collected Margin for one leg. and moreover it is ATM so exist will also be easy from liquidity purspective

I would request you to think on Deep in the money netted postions( for naked positions it night be ok). if such high margins are put on Deep netted positions , its like discouraging people making profitable trades. when the trader placed the order it would be ATM or OTM . since the stock went in his favor but due to no liguidity he would have to take lot of loss selling at unfavourable prices.

Let me know if i’m wrong in some assumptions , happy to understand…