According to a SEBI mandate, if you have any open F&O positions in Equity Stock Options on the expiry date, you are required to mandatorily opt for physical delivery.

How does Physical settlement work?

In case a trader has an open position in a Stock Futures contract & In-The-Money Stock Options that has not been squared off on expiry date, these contracts would have to be physically settled. The trader thus gives or receives delivery of the stocks which were the underlying to settle the transaction. Index based F&O contracts continue to be settled in cash whereas all Stocks in F&O contracts are settled physically.

Margin requirement for physical settlement in Futures

In a situation that one chooses physical settlement in Futures, cash equivalent to contract value (Open quantity* Futures price) needs to be brought in to take delivery of shares when it is buying futures. While selling futures, one needs to ensure that sufficient free shares are available in their demat account before 11:00 am on the expiry day.

Example for futures: -

Future:

If you have a long position in 1 lot (150 Qty) TCS futures at Rs.4000 so contract value becomes Rs.6 lakhs (Qty*Price). Thus, an initial margin of Rs.1,20,000 or assuming 20% SPAN + ELM of contract value is required to create an open position. When going for physical settlement, then remaining cash equivalent needs to be brought in addition to the initial margin deposited amount to take delivery of 150 shares amounting to Rs 6 Lakhs. 

When selling a Futures contract in TCS 1 lot (150 Qty) at Rs.4000, contract value becomes Rs. 6 lakhs. You have to pay an initial margin of 1,20,000 or assuming 20% SPAN +ELM of contract value to create an open position. Whilst going for physical settlement, then one needs to ensure free balance of 150 shares is available in their demat account of TCS to give delivery of 150 shares.

Margin Requirement for physical settlement in Stocks Options

Margin requirements in Stock Options work in a different manner from Futures contracts. This is because as the contracts move closer to expiry day, the margin requirements increase and they cannot be rolled over as in the case of Futures contracts.

For instances, Thursday is expiry day for Options contracts, there is a gradual increase in margin requirement i.e., on Friday i.e., on E-4 day (i.e., 4 days before Expiry) one needs 10 % margins of the contract value (Qty*Price) also known as VaR + ELM +Adhoc margins. On Monday i.e., E-3 day, one needs to have 25 % of margins, on Tuesday (E-2 day) requirement of 45 % margins and finally on Wednesday (E-1 day) one needs to have a margin of 70 %. On Thursday i.e., on final expiry day (E) client should have 100% of VaR + ELM +Adhoc margins on contract value in their F&O allocation. If the request for Physical Settlement is made between 9 am to 11 am on expiry day, one has to bring in remaining margin equal to contract value or free shares in demat by 11 am. If physical delivery is not requested, all Long Stock Options at 12 PM and Short Stock Options positions at 2:30 PM will be squared off.

This has been illustrated below with examples. Assuming 20% VAR+ ELM+ Adhoc margins is required for TCS.

Long stock options which are near month ITM (in the money) & CTM (close the money) contracts i.e., within 5% of the spot price, will be applied physical delivery margins

e.g.: If spot price is Rs. 100 then 100-105 call options and 100-95 put options will be considered as CTM. As the spot price moves up or down, the CTM contract will change accordingly. 

For short call & short put if client intends to go for physical settlement, client needs to ensure sufficient free shares or margin in their trading account.

Example: If you have a short call options position in 1 lot TCS 4000 strike price - you have to pay an initial margin to create an open position. If you decide to go for a physical settlement, then you need sufficient free balance in your demat to give delivery of 150 shares.

Short option positions that are 4 OTM strikes from prevailing SPOT price will be squared off by the system on or after 2:30 PM* and the remaining contracts will get expired.

Example: - If the spot price is ₹100: - Call options from 101 to 104 will be squared off. - Put options from 99 to 96 will be squared off. As the spot price fluctuates, the relevant OTM contracts will adjust accordingly.

What is the impact on spread positions in F&O?

ITM (In the money) spread positions will be netted off as the impact of take & give delivery is zero, where the spread ratio is 1:1.

When does ICICIdirect collect these Margins?

When you buy Options, you pay a premium. The additional margins during the 3 days are collected at 3:15 PM for Options contract which become In the Money (ITM) only. A day before expiry (Wednesday) & on expiry day (Thursday) collection of the required margin on ITM option positions will run every hour. If sufficient margins are not there, such positions will be squared off by the system.

What happens on expiry day?

You can opt for one of the below 2 options –

• Rollover your position to next month’s contracts (for Futures contract only)
• Square off your open positions in near month contracts before expiry or till such time I-sec runs the End of Settlement Square-off process for Options at 1:30 pm & Futures at 2:30 pm to close all open positions on best effort basis prior to Expiry.
• Positions in delivery stocks and if customer selects “Choose Non-Delivery” then such positions will be squared off in the EOS process before the expiry of such contracts. All Long Stock Options at 12 PM and remaining F&O positions at 2:30 PM.

TIMELINE FOR LONG FUTURES & SHORT FUTURES and OPTIONS

NOTE – Margins will be charged as per I-sec policy. The system-squared off timing may be revised by I-Sec at discretion on the basis of prevailing market conditions.

How do you opt for physical settlement in Futures & options?

You can place your physical delivery requests on Stock Futures and Options for the current monthly expiry by visiting the open position page during the following timeframe:

• Start Date: From Friday (T-5 days before expiry) at 9:00 AM

• End Date: Until Thursday (expiry day) at 11:00 AM

Where can I check status of my position when opted for physical delivery? 

Go to F&O > Visit an open position tab > Go to delivery option > Select the date > You will find your physical delivery request status.

Position not squared off on the expiry day?

If for some reason your position couldn’t be squared off due to lack of liquidity, then In-the-money (ITM) option contract will be assigned to you.

If you are holding long call options and it expires the In-the-money (ITM), the contract will be exercised to you and if you don’t have funds to buy the shares, ICICIdirect will be forced to buy the stock on your behalf and sell next day. The equivalent profit or loss along with statutory charges will be passed to your account.

If you are holding long put options and the contract expires in-the-money (ITM), you will have to have shares to give delivery. In case the shares are not there in your demat account, it will go for auction. ICICIdirect will attempt to arrange the stock from If any profit, that also will be credited to your account.

Price at which F&O contracts will be delivery settled on the expiry day?

The delivery settlement obligation shall be computed at following prices

• Futures - Final Settlement price of the futures contract
• Options - Strike price of the respective option contract

All futures positions shall be first mark to market to final settlement price on the expiry day and the same shall be settled on T+1 day as currently being done.

Brokerage Charges

If Physical Settlement takes place, we will charge you:

Physical Delivery Brokerage: 0.15% of the Physical Settled Value.

Important Instructions:

 1. Sufficient Margins and Funds/Shares:  Please ensure you maintain adequate margins, along with the necessary funds or shares in your trading and demat accounts, to meet your delivery obligations. If these requirements are not sufficiently met, your position may be squared off before expiry, and no delivery will occur.

 2. Provisional Blocking: The provisional funds/securities blocking process can be initiated at any time after 11:00 AM on the expiry day. If sufficient funds or shares are not available in your trading or demat accounts, the contract position will be marked as Non-Delivery ('N') and it will be squared off before expiry.

 3. Trading Holiday Adjustments:  If a trading holiday falls within the five days before expiry (T-5), the start and end dates may be adjusted accordingly.

 4. Margin Requirements:  Margin requirements, including the physical delivery margin, will apply as usual during the T-5 period (physical delivery margin period). Your position may be squared off if the required margin is not maintained.

 Please Note: The system square-off timing may be revised, and any changes will be communicated to you in advance. Additionally, I-Sec reserves the right to modify the square-off mechanism from four OTM strikes to additional strikes based on prevailing market conditions.