If a trader wants to take a position in stock options eg: Asian Paints and want to make sure there is no physical settlement, what measures can be taken?
Are these following measures correct to ensure no physical settlement:-
Covered positions, so i sell 100 ce and buy 110 ce, current price is 90.
Square off positions before expiry but this may not work always if there is no one to trade at your strike price.
Having two positions with different obligations will net-off the physical settlement obligation if both positions expire ITM.
If one option expires ITM, and other OTM then it will be physically settled.
If both expire OTM, the options will expire worthless and there won’t be any physical settlement.
You can learn more on physical settlement here: What is Zerodha's policy on the physical settlement of equity derivatives on expiry?
How can ‘Do not Exercise’ be used here?
The DNE facility is available only for Close To Money option contracts. We’ll be using this option on the expiry day in case the cash balance in your account and the intrinsic value of the option contract is less than 50% of the contract value. Explained in the article shared above.
Hey, I have a question. Say on expiry, I use MIS to purchase 250 quantities of Reliance. Against that, I sell an ITM ce that gives me 8 rs of extrinsic value. I let the option expire.
How would the settlement be done? I don’t have the shares in my account
(niether by that point do I have the ability to).
Would the MIS order be auto-squared off?