Expiry day OTM option

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1

Hello,
Today I received the notification to square off my position before 10:30 am for OTM option.

  1. What will happen for OTM option if I don’t square off and option expire worthless ?
  2. What if it goes in the money and I am ready to take delivery, how can I avoid auto square off from Dhan.
  3. Some OTM option have lower circuit limit like shreecement and dr reddy. What will happen in cases like these option which are stuck on Lower limits and I cannot square off ?

Thanks

2

Hi @dabuu

Welcome to the community.

To answer your question.

  1. Nothing will happen. The value of OTM option at the end of the expiry will be zero. All your premium value is lost.
  2. If it goes ITM, and you wish to take delivery, the Risk policy is clear. You have to maintain full margin in your trading account before 10.00am on the day of expiry. Else RMS will auto square off.
  3. In case OTM option gets closer to cricuit limit and if it ends as OTM, then same case as in point 1. If it ends as ITM, then there will be delivery obligations.

The RMS Policy at Dhan states that -

In case of Stock Future contracts on Expiry day, only intraday trading will be allowed. No fresh carry-forward position will be allowed & no fresh position will be allowed in Stock Option contract on day of Expiry in any product type.
For carry forward position, if the customer wishes to take or give physical settlement of Stock Future /Stock Option contracts, they would be required to maintain margin, which is to the tune of 100% of the contract value before 10.00 am on expiry day.
If for any reason, in case there is a margin short-fall ( i.e. less than 100% of the contract value) , Dhan reserves the right to square-off the position. In case the position does not get squared-off for reasons such as liquidity constraints, option contract getting converted to ‘In The Money’ during market hours etc, the costs (penalties/losses) of physical delivery will be applicable to the customer.

You can read more about Risk Policy here - Risk Management Policy | Dhan

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3

Hello @Naman ,
Thanks for reply. In case if I have sold OTM option and it expires worthless and I have not squared off the position, will there be any charges from Dhan ?
For example On expiry day if HDFC BANK close at 1600 and I sold 1700 CE @2.5 and it expires worthless. What will be charges or penalty ? Will I receive the premium 2.5 * 550 if I did not square off ?

4

Hi @dabuu

Yes you are correct. If you have sold an option and it expires in OTM. You will receive all the premium in the P&L. There will not be any extra charges. Your P&L is maintained on a MTM basis in the ledger.

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