Why delivery are not netted off on expiry?

Zerodha
1

I had the following positions in VEDL. VEDL closed at 424.64 on expiry.

NRML VEDL JUL 420 CE NFO -2300 31.00 6.25 +56,925.00 -79.84%
NRML VEDL JUL 430 CE NFO 2300 25.65 0.10 -58,765.00 -99.61%

I was under the impression that in this case the positions will be netted off, but just now I got the email that i will have to give physical delivery because VEDL25JUL420CE is a short position.

I have been taking such positions and never faced such an issue.

What is the reason this time, I raised a support ticket but thought of asking here.

TIA
VJ

Reference from this line

Spread and covered contracts

If a client hold multiple F&O positions in the same stock and if the overall position in the account results in an equal quantity of both, give and take delivery, they are netted off¹. So for example an equal number of lots of long futures (take delivery) and short ITM calls (give delivery) on expiry will lead to no delivery obligations as both positions are netted off.

While the net delivery obligation could be zero because of the various opposing F&O positions in the same stock, the delivery margins are still charged on each F&O position separately. So if a client had an equal quantity of short futures and long calls, the delivery margin would be asked separately for both the futures and calls contracts. The delivery margin exists because a client can exit one of the positions which can, in turn, lead to a delivery obligation.

2

@VJ_Trader This didn’t net off because your long 430 CE expired OTM and worthless, so the short 420 CE was treated as a naked ITM position. Only ITM legs are considered for netting off at expiry.

Btw, could yu please DM me the ticket number?

3

Bro, the closing price was ₹424.64, so your 430 CE ended up OTM (Out of The Money), and the 420 CE became ITM (In The Money).

As you already know, OTM Stock options have no physical delivery obligation, so the long 430 CE simply expires worthless.

However, since your 420 CE short position is ITM, you now have a physical delivery obligation on that leg. The key point is:
The positions won’t be netted off because the long position (430 CE) is OTM and won’t result in delivery, while the short 420 CE is ITM and will.

That’s why the short leg leads to a delivery obligation, even though you held a spread.

Also, in the example from the support article you referred to, they combined ITM stock option positions with stock futures contracts. That’s important to note because stock futures don’t have ITM/OTM concepts — they always lead to physical delivery at expiry, so in this case it will lead to netting off.

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