What is physical settlement in F&O?

What is physical settlement in F&O?

What is physical settlement? In an F&O contract, when there is an open position that has not been squared off by its expiry date, physical settlement takes place. This implies they have to physically give/take delivery of stocks to settle the open transactions instead of settling them with cash.

When physical settlement is possible in the future contract it is known as which settlement?

This is known as physical delivery and can be much more cumbersome than a cash settlement. If an investor goes short on a futures contract for $10,000 worth of silver, for example, it is inconvenient at the end of the contract for the holder to physically deliver the silver to another investor.

What does physical settlement mean?

The physical settlement means if you hold a position in any Stock F&O contract, at expiry, you will be required to give/take delivery of stocks. The physical settlement is restricted only to stock derivatives. Physical settlement of index options is not applicable.

What is the brokerage charge for a physical settlement trade?

Since there is a substantial increase in effort and risk to settle these F&O positions resulting in physical delivery, a brokerage of 0.25\% of the physically settled value will be charged.

What happens when PE expires?

For call option holder, Out of the money is the situation in which strike price is higher than the current market price of the underlying security. An out of the money has no intrinsic value, but it posses only time value. If an option is out of the money at the time of expiry, it will expire worthlessly.

What does net settlement mean derivative?

5 Net settlement. Another key concept in the definition of a derivative is whether a contract can be settled net, which generally means that a contract can be settled at its maturity through an exchange of cash, instead of through physical delivery of the referenced asset.

What is physical settlement script?

From October expiry all F&O scripts/contracts will be settled on physical basis if they open for exercise. For example – in case of cash settlement, if trader bought future for XYZ Ltd (lot size – 5000) at Rs 100, then contract value is Rs 500000 and generally on an average he pays a margin of 20\% (about Rs 100000).

What is the difference between physical settlement and cash settlement?

Cash settlement is an arrangement under which the seller in a contract chooses to transfer the net cash position instead of delivering the underlying assets whereas physical settlement can be defined as a method, under which the seller opts to go for the actual delivery of an underlying asset and that too on a pre- …