What will happen if we dont close deep ITM option at expiry

#1

@siva What will happen if i fail to close the deep ITM option which i sold and the option expires or i dont find sellers for me to buy again. What would be the loss for me other than the amount i used to sell the option.

#2

Any ITM if not expired will be closed out at intrinsic price of the option. So if you shorted Nifty 11000 calls and Nifty closed expiry at 11500, 500 points is paid back to the buyer. So your selling price - intrinsic value = P&L

But if you are holding stock options which are compulsory physical delivery, you will have to either give or take delivery of the stock based on short puts and calls. Check this

#3

Thanks @nithin

#4

Hi @nithin,

Assume that a person holds a long call In The Money option position.

A couple of questions with regard to the compulsory physical delivery part where the margins increase from 40% to 80% in the final few days before the expiry day

Zerodha website states thus:
“In the event that you do not fulfill these margin obligations on time, your positions are liable to be squared off.”

Question 1: Will the positions be mandatorily squared off (or is it just liable to be squared off) or is it at the discretion of your RMS team. If it is discretionary, will the trader be able to know before-hand?

Question 2: Can the trader keep the position till the expiry day and take delivery of shares by paying penalty. If yes, how much will the penalties be?

Question 3: Zerodha website states the following: “You are required to bring in funds if your account results in a debit balance after physical delivery failing which the delivered shares will be liquidated to make good of the debit balance.” Can the trader keep the position and prefer to have the delivered shares liquidated to make good of the debit balance? Can he opt for this? What charges are involved?

#5

It is discretionary and trader won’t be informed before closing.

No, unless one has enough money or shares.

RMS will try to close the position if one is short of funds/shares and incase if we din’t for any reason then client has to make good for it. We won’t give any option to users on this.