Yes, according to SEBI guidelines, all In The Money (ITM) stock options contracts are physically settled, regardless of whether you are the buyer or the seller. This means if you hold an ITM options position at expiry, you must either provide or accept the underlying stock in physical form.
For the Call Option Buyer:
Scenario
- Mr. Man buys one lot of Tata Motors 500 CE at ₹10 premium when the stock price is ₹480.
- Lot size = 1425 qty.
- As the expiry approaches, Tata Motors rises to ₹530, making the call option ITM.
Mr. Man has two options:
- Deposit ₹7,12,500 (₹530 × 1425 qty) into his trading account 5 days before expiry.
- Exit or square-off his position at least 5 days before expiry.
If he fails to meet either of these options, FYERS' risk team may square off his position. Additionally, failure to maintain margins could result in penalties.
Post-Expiry Outcome:
If Mr. Man deposits the funds, Tata Motors shares will be credited to his Demat account, after the contract value of ₹7,12,500 is deducted.
For the Put Option Buyer:
Scenario
- Ms. Kani buys one lot of Tata Motors 500 PE at ₹10 premium when the stock price is ₹520.
- Lot size = 1425 qty.
- By expiry, Tata Motors drops to ₹470, making the put option ITM.
Ms. Kani has three choices:
- Deposit ₹7,12,500 (₹470 × 1425 qty) into her trading account 5 days before expiry.
- Have 1425 qty of Tata Motors in her Demat, ready for physical settlement.
- Exit or square-off her Tata Motors 500 PE position at least 5 days before expiry.
Failure to meet any of these options may result in FYERS’ risk team squaring off the position. Not maintaining margins could incur penalties.
Post-Expiry Scenario:
- If Ms. Kani deposits the funds, the contract value will be deducted from her trading account, and the shares will be bought from the market and transferred to the option seller.
- If Ms. Kani already holds the shares in her Demat, the 1425 qty of Tata Motors will be deducted and transferred to the put option seller.
Always maintain sufficient funds or stock holdings to avoid penalties or forced liquidations at expiry.
What if...
| Scenario | Outcome |
|---|
| Call option buyer doesn’t deposit funds | Shares are credited after depositing the required funds |
| Put option buyer doesn’t have the shares | Shares are deducted from Demat and transferred to option seller |
| Buyer wants to exit before expiry | Exits with no physical settlement required |
Last updated: 27 Jun 2025
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