At FYERS, when an in-the-money (ITM) commodity options contract expires, it does not settle in cash like equity or index options. Instead, the option is automatically exercised and converted into a futures position of the underlying commodity, such as crude oil, silver, or gold, as per the MCX physical settlement framework.
Understanding ITM Option Expiry
All commodity options listed on the MCX (Multi Commodity Exchange) are physically settled through the underlying futures contract. This means:
- On expiry, ITM options are exercised automatically and converted into equivalent futures contracts.
- The resulting futures position carries standard margin and delivery obligations as per exchange rules.
- Your FYERS ledger must have sufficient margin to hold the futures position after expiry.
MCX Exercise and Settlement Process
The expiry and conversion process on MCX works as follows:
- Expiry Day: The exchange determines ITM options based on the Final Settlement Price (FSP) of the underlying futures contract.
- Automatic Exercise: All ITM contracts are exercised and converted into corresponding futures positions.
- Margin Requirement: Once converted, FYERS applies the standard futures margin requirement immediately.
- Post-Conversion: The converted futures contract continues to trade and settles under the normal T+1 mark-to-market process.
How to Manage ITM Option Expiry
- Exit or hedge before expiry: If you do not wish to take on a futures position, close your ITM options before expiry day.
- Maintain adequate margins: Keep enough balance in your FYERS ledger during expiry week to prevent auto-square off.
- Roll over if needed: After conversion, you can roll over your futures contract to the next expiry if your strategy requires it.
Example
Let us say you hold one lot of Crude Oil 6800 CE (Call Option) that expires in-the-money at ₹7,000.
- The option expires ITM since the underlying futures price is higher than the strike price.
- MCX automatically exercises your option and converts it into one lot of Crude Oil Futures.
- You must maintain the required futures margin in your FYERS ledger to continue holding the position.
Key Things to Remember
- All ITM commodity options are physically settled through futures conversion.
- Out-of-the-money (OTM) options expire worthless and no futures position is created.
- Futures margins are applied immediately after conversion.
- At FYERS, our RMS may auto-square ITM positions if there is a margin shortfall before or after expiry.
What If...
| Scenario | Outcome |
|---|
| I let my ITM option expire | It is automatically exercised and converted into a futures position by the exchange. |
| I do not have enough margin after conversion | Our RMS team may square off your converted futures position to prevent margin shortfall. |
| I want to avoid conversion | Exit your ITM options before expiry. For assistance, you can contact our support team. |
| My option expires OTM | No conversion occurs. The option expires worthless and no margin is applied. |
Important: At FYERS, we follow MCX and SEBI rules for physical settlement of commodity options. Failing to maintain the required margin during expiry can result in liquidation or penalties. Always manage your positions and funds proactively before expiry.
Last updated: 05 Nov 2025
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