Suppose I sold a put option of a stock of 100 strike. On expiry day, the price of the stock is 90. Before market closes, I sell one lot of same stock’s same expiry future. I understand that there will be loss on selling put option, but will I have any delivery related obligation?
Same goes for call option. Suppose I sold 100 strike call and on expiry, underlying is 110. Before market closes I buy one lot of future of same stock same expiry. Will I have any sort of delivery of the stock related obligation?
@shruthi_shetty the intention is to avoid any delivery related complications on expiry day. If I follow like above, can I avoid any such complication, but still hold the option contract as a seller till expiry?
Hi @tanmay_ray, for stock options, if you retain your position till expiry without squaring it off, it will be subject to physical settlement. This means:
You will receive shares if you have a long position.
You will need to deliver shares if you have a short position.
If you have long and Short positions, they will be netted off to offset delivery obligations. For example, if you have a Call option, sell, and Future Buy Position, they will get netted off. However, this is only if your option position is ITM. If it becomes OTM, physical delivery will apply to your futures position. Make sure to monitor your positions closely to avoid any delivery-related issues.
For index options, there’s no physical settlement involved as these are cash-settled. If positions are not squared off before expiry, the exchange will handle the settlement automatically based on the closing price.
This approach ensures you avoid complications related to physical delivery while trading derivatives. Check out our blog to learn more about policies on the physical settlement of stock derivatives.
Hi Tanmay, I understand that as an options seller in equity stock options, you want to avoid physical delivery if your options position goes in-the-money on expiry day.
According to the RMS policy, new positions in futures and options (across all products) are blocked on expiry day. Therefore, I suggest you trade in the Cash segment and manage the “Net delivery of CM and FO obligations upon expiry of stock derivatives.” For instance, if you have an in-the-money sell call option, you can buy an equivalent number of shares in the CM segment for the same underlying. Similarly, if you have an in-the-money sell put option, you should hold the equivalent number of shares holding and then execute a sell transaction in the CM segment on expiry day. This approach will ensure your net obligation is zero.