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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

A stock option contract on a physically settled stock is held to expiry. Under the current SEBI framework for stock derivatives in India, how are in-the-money stock options and stock futures positions settled at expiry?

Stock derivatives positions that remain open at expiry are settled by physical delivery of the underlying shares under SEBI's framework. Index derivatives, by contrast, are cash settled. Contracts do not roll over automatically.

  1. ABy physical delivery of sharesCorrect
  2. BBy cash settlement at the closing price
  3. CBy rolling over automatically to the next month
  4. DBy payment of premium difference only

Explanation

Under SEBI's framework, stock derivatives are compulsorily physically settled at expiry, so open positions result in delivery obligations of the underlying shares. Index derivatives remain cash settled. Automatic rollover does not occur, and premium difference settlement applies only to cash-settled style.

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