@siva. Hi sir. Question is about taking delivery of stocks by put option writer
And giving delivery by put option buyer.
Suppose a trader has enough shares of TCS equivalent to one lot in his demat.
He goes and buy a put option at strike price of 1600 . Now let us say TCS ended at 1400 on expiry day. This trader does not want to square off but he wants to give one lot equivalent delivery through his demat account. Will a broker allow this choice?
Another important question is trader called W writes a put option at Rs 1600. Now tcs went down upto Rs 1400. Can this guy let his written put option exercised and take delivery at agreed price of Rs 1600? Because he hopes sooner or later tcs will give him returns so he wants to take deliverym
It depends on who you are trading with, both should be allowed, however most brokers today have a policy of squaring off of all stock contracts in order to avoid settlement through physical delivery. If you’re trading with Zerodha, we’d allow you to give/receive delivery subject to sufficient margins being made available.
@VenuMadhav I guess Zerodha blocks margin as 2*[span+exposure} as stipulated by exchange. But many times due to volatility that exchange stipulated margin goes up to 60-70 percent of contract value. Then in this case suppose for put options sell with contract value of 1lakh and say exchange required margin is 60000 then will Zerodha block 120000 for contact value of 100000. I hope you got what I am trying to say.
Yup, I got the point you’re trying to make. Where the margin % levied by the Exchange >50, we block at max the contract value which is 100%. Doesn’t exceed that.
@VenuMadhav one layman question. Suppose i have in my demat one lot equivalent shares of tcs. I decide to write a call option and sell at a strike price of 1700. Now instesd of blocking margin can my one lot equivalent shares in demat be blocked? In case tcs breaches 1700 and go to 1900 on expiry day i can give delivery of my shares instead of taking a direct money loss by a square off. Will that be possible?
Eg: I am call writer. Instead of blocking span and exposure margin , can my demat shares be blocked and allowed to be used for physical settlement of a stock call option if the call option has to be exercised? Assume i have enough holdings in my demat equivalent to my lot size.
Not possible, margins will be charged. Imagine if one sold shares on last day of expiry and bought something else, it will lead to short delivery, trouble for broker and client.
just for understanding. Say i sell one lot bajaj finance call option at strike price 2600 may28 2020 expiry series . Say 1 lot i sell. 250 per 1 lot is size.
Now for selling this call option there will be span and exposure margins to be blocked.
Instead if i allow my broker to block my 250 shares of bajajfinance which will be frozen and blocked. I will not be able to touch that blocked 250 shares
Lets say on expiry day bajaj finance closed at 2900. I did not square off my position.
Now my broker can give delivery on my behalf that 250 shares which were blocked earlier.
I will be happy to give delivery at 2600 even though spot is 2900. Probably my demat 250 would have been bought at say 1700 per share long back.
U got my point? That is the original purpose of option trading right? Hedging and earn premium or buy insurance for one’s portfolio.
Agree but currently the infrastructure is not built for this kind of smooth transaction yet in India.But you can pledge those stocks to get margins to trade in fno.