How is the value for physical settlement of F&O contracts calculated?
The settlement value for physical delivery of F&O contracts is calculated as:
- Futures:
Scenario A. Mr Sudheesh purchases 1 lot (1500 shares) of SBIN December futures for Rs. 450 (long position).
Contract value = 450 * 1500 = Rs. 6,75,000
If the position is not closed by expiry, it will have to be physically settled by paying for the entire contract value. Assuming that the closing price of SBIN on the expiry day is Rs. 500, Mr Sudheesh will have to pay Rs. 6,75,000 (450 * 1500) and take delivery of the shares in his demat account.
Scenario B. Mr Sudheesh sells 1 lot (1500 shares) of SBIN December futures for Rs. 450 (short position).
If the position is not closed by expiry, it will have to be physically settled by giving delivery of the concerned shares. Assuming that the closing price of SBIN on the expiry date is Rs. 400, Mr Sudheesh will have to give delivery of 1500 SBIN shares from his demat account, and will receive a payment of Rs. 6,75,000 (450 * 1500) for the same.
- Options:
Physical Settlement Price = Strike Price * Quantity
For example, Mr Sudheesh sells 1 lot (1500 shares) of SBIN call options with a strike price of Rs. 450.
Assuming that the closing price of SBIN on the expiry date is Rs. 500, the contract is said to be In the Money (ITM). To physically settle the contract, Mr Sudheesh will have to give delivery of 1500 SBIN from his demat account against which he will receive a payment of Rs. 6,75,000 (450 * 1500).
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