What would happen when stock long ITM option reaching expiry and there is no seller?
How physical delivery will take place if client doesn’t have enough money in his account?
Hi @Amit526 Amit, as the expiry nears - the margin obligations on contracts goes up.
We have explained this in detailed in our Risk Management Policy. Please refer to the section on Physical Settlement here: Risk Management Policy | Dhan
Sir how can the margin requirement will be increased in case of option buying?
For ex- suppose i buy In th money option of ABC stock , and that ITM option goes deep itm and there is no liquidity available at that strike and i also don’t have any extra cash in that account.
Than in that case what will happen?
here are the things that will happen
- Exercise with insufficient funds: If the client attempts to exercise the option but lacks sufficient funds, the exchange will automatically sell the underlying shares on their behalf to meet the delivery obligation. This is known as “forced selling” and can lead to unfavorable prices, especially if the market is illiquid near expiry.
- Automatic exercise: Some exchanges, like NSE, automatically exercise ITM call options at expiry if the client hasn’t instructed otherwise. This again triggers the forced selling of underlying shares to cover the delivery cost.
- Margin penalty: The client will likely face a margin penalty from the broker for exceeding their credit limit due to insufficient funds.
- Negative account balance: If the forced selling of shares doesn’t cover the entire cost of delivery, the client’s account will go into a negative balance. This can result in further penalties and restrictions on trading until the debt is cleared.
1 Like