What are the risks tied to the physical delivery of stock Futures and Options?
Physical delivery in stock F&O means you must deliver or receive actual shares if you hold open positions at expiry. This comes with key risks:
- Insufficient Funds or Stocks: If you don’t have enough cash or shares to settle, your broker may square off your position to avoid default.
- High Margin Requirements: As expiry approaches, margin requirements rise significantly—up to 50% of contract value—especially for in-the-money (ITM) positions
- Risk from Sudden Moves: Out-of-the-money (OTM) options can become ITM on the last day due to price changes. Since no extra margins are blocked for OTM contracts, you could be forced into a large delivery obligation unexpectedly.
Tip: Always monitor your F&O positions nearing expiry and ensure you have sufficient margins(to take delivery) or exit in time if you don't intend to take or give delivery.
