In India, all stock Futures & Options (F&O) contracts listed on stock exchanges are subject to compulsory delivery. This means that if you hold any stock future or any In-The-Money (ITM) stock option at the time of expiry, you are required to either give or take delivery of the underlying stock. Conversely, any Out-of-The-Money (OTM) stock options will expire worthless, meaning you won’t have any delivery obligations. All index F&O contracts, on the other hand, are settled in cash.

Understanding Delivery Obligations for Stock F&O Contracts After Expiry

Margin Requirements for Physical Settlement

1. Futures and Short Option Positions (Calls & Puts): As you approach the expiry day, the margin requirement for stock Futures and short options (both calls and puts) increases. On the expiry day, the margin needed is 40% of the contract value or the SPAN + Exposure margin, whichever is higher. For instance, if the SPAN + Exposure margin for Reliance Industries futures is 25%, this margin will increase to 40% on the expiry day.

2. Long/Buy Option Positions (Calls & Puts): When you buy stock options, you pay only a small premium. However, if your option ends up In-The-Money (ITM) by expiry, you are obligated to take or give delivery of the stocks. To manage this risk, exchanges start applying physical delivery margins starting 4 days before the expiry date. These margins increase as the contract nears expiry. Here's a breakdown:

What Happens If Margins Are Insufficient?

1. Stock Receivable Positions (Take Delivery): If you don't have enough funds in your account to cover the required margins, your account may go into a negative balance (debit). In this case, an interest of 24% per annum will be charged on the debit balance. To cover this debit, Navia’s RMS (Risk Management System) team may sell the stocks you received through the physical settlement.

2. Stock Deliverable Positions (Give Delivery): If you need to deliver stocks but don’t have enough in your Demat account, this will result in short delivery, leading to an auction penalty. All positions requiring you to deliver stock must be backed by sufficient stock in your Demat account during the expiry week. If you don't have enough stock, you could face penalties from the exchange.

Handling Multiple F&O Positions (Spread and Covered Contracts)

If you have multiple F&O positions in the same stock, which result in both “give” and “take” delivery obligations, these can be netted off. For example, if you hold an equal number of long futures and short ITM calls, these positions will offset each other, meaning no delivery obligation arises. However, delivery margins are still charged separately for each position.

Policy for Close-to-Money (CTM) Contracts

Exchanges define Close-to-Money (CTM) contracts as a subset of In-The-Money (ITM) options that have a small intrinsic value close to expiry.

• Call Options: The 3 ITM option strikes immediately below the final settlement price are considered CTM.
• Put Options: The 3 ITM option strikes immediately above the final settlement price are considered CTM.

Brokerage and Other Charges

• Brokerage Fee: A higher brokerage of 0.25% of the total value of physical delivery is charged due to the additional processing involved. For netted-off positions (like spread contracts), the brokerage is 0.1%.

• Securities Transaction Tax (STT): A levy of 0.125% of the contract value is charged for both the buyer and seller during physical settlement.
• Interest on Debit Balance: If your account goes into a negative balance due to insufficient margins, you will be charged an interest of 24% per annum.

Important Steps to Take Physical Delivery

1. Demat Account: Ensure you have an active Demat account with Navia.
2. Sufficient Margin: Make sure that your available margin is equal to or greater than the total contract value.
3. Notify Intent: Email your intention to take physical delivery via Navia’s Support Portal at least 1 day before the market closes on expiry day. If your account has sufficient funds, Navia’s RMS team will convert your position from MIS (Intraday) to NRML (Normal) for physical delivery.

Special Notes

1. On expiry day, all overnight positions in stock contracts will be treated as MIS positions in the Trading System.
2. The above rules apply only to stock contracts, not to index Futures and Options, which are cash-settled.
3. Navia’s RMS team reserves the right to modify this policy as needed.