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

How are index option contracts on Nifty 50 settled at expiry in the Indian market?

Nifty index options are cash settled at expiry using the closing index value. In-the-money contracts pay the difference in cash, because delivering the underlying basket of index shares is impractical. Physical delivery applies to stock derivatives.

  1. AIn cash, based on the closing index value on expiryCorrect
  2. BBy physical delivery of all index constituent shares
  3. CBy physical delivery of one representative share
  4. DThrough rollover into the next-month contract

Explanation

Index derivatives in India are cash-settled, since delivering a basket of 50 shares is impractical. In-the-money options are settled in cash on expiry against the closing index value. Physical settlement applies to stock derivatives, not index ones.

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