Before 11th April 2018, trading in equity derivatives was cash settled. This means, at the time of expiry the contracts would get settled in cash without having to take the delivery of equity stocks. On 11th April 2018 SEBI has made it mandatory that every contract that has stock as underlying asset, must be settled physically. The reason being to curb the excessive speculation that leads to high volatility in the market for that stock.
Click here to know the list of Physically settled stocks
Physical settlement is the method in which the equity derivatives contracts, during expiry, shall be settled by crediting/debiting equity shares amounting to contract value to/from demat account.
If you are a seller: In physical settlement a seller has to deliver the actual equity stocks to the buyer at the time of expiration. The stocks will be debited from the demat account.
If you are a buyer: On the other hand, a buyer of the contract has to actually buy the entire quantity by paying the full amount to the seller. The stocks will be credited to the buyer’s demat account.
Clients holding the ITM contracts will have to compulsorily deliver/receive the delivery of shares based on holding of Put/call option contracts based on exchange norms. We at TradeSmart Square off the positions falling under physical settlement to avoid physical delivery obligation.
There will be no delivery obligation for OTM contracts as these contracts expire worthless.
3 options strikes immediately above/ below the final settlement price shall be considered as CTM. In case you’ve an option that expires as CTM, the assignment of such CTM option is done randomly by the Exchange to any client having CTM positions. However, if an option gets assigned to you, you will have to give/receive delivery of stocks depending on whether you have written a call/put option.
In case you have an open position in futures and options stocks, you need to square off or roll over the position two days before expiry.
Beginning of the day (BOD) | Margin Requirement |
4 days prior (Friday BOD) | 10% of VaR + ELM + Adhoc margins |
3 days prior (Monday BOD) | 25% of VaR + ELM + Adhoc margins |
2 days prior (Tuesday BOD) | 45% of VaR + ELM + Adhoc margins |
1 day prior (Wednesday) | 70% of VaR + ELM +Adhoc margins |
Here are the benefits of physical settlement in Futures and Options Trading:
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.