{"id":7764,"date":"2024-12-16T10:14:05","date_gmt":"2024-12-16T10:14:05","guid":{"rendered":"https:\/\/navia.co.in\/blog\/?p=7764"},"modified":"2026-08-13T09:26:29","modified_gmt":"2026-08-13T09:26:29","slug":"sebis-money-itm-stock-options-into-futures","status":"publish","type":"post","link":"https:\/\/navia.co.in\/blog\/sebis-money-itm-stock-options-into-futures\/","title":{"rendered":"SEBI&#8217;s Consultation Paper on Converting In-The-Money (ITM) Stock Options into Futures: Summary and Key Aspects"},"content":{"rendered":"<ul><li><a class=\"aioseo-toc-item\" href=\"#background\">Background<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#key-aspects-of-the-proposal\">Key Aspects of the Proposal<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#1-current-settlement-process\">1. Current Settlement Process:<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#2-proposed-changes\">2. Proposed Changes:<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#3-settlement-mechanism\">3. Settlement Mechanism:<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#4-margin-requirements\">4. Margin Requirements:<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#data-analysis-overview\">Data Analysis Overview<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#navias-perspective\">Navia&#039;s Perspective<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#call-to-action\">Call to Action<\/a><\/li><li><a class=\"aioseo-toc-item\" href=\"#frequently-asked-questions\">Frequently Asked Questions<\/a><\/li><\/ul>\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-8ac4c472aa7f14a17b2aca910cd78f29\" id=\"background\" style=\"color:#023368\"><strong>Background<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\" style=\"line-height:1.8;text-align:justify\">SEBI issued a consultation paper proposing the automatic conversion of ITM stock <a href=\"https:\/\/navia.co.in\/open-options-trading-account\">option <\/a>contracts into futures one day before expiry. This move aims to mitigate risks associated with sudden price movements causing <a href=\"https:\/\/navia.co.in\/blog\/what-is-options-trading\/?utm_source=blog&amp;utm_medium=internal_link&amp;utm_campaign=algo_trading\">Out-of-The-Money (OTM) options<\/a> to become ITM near expiry, leading to unexpected physical delivery obligations.<\/p>\n\n\n\n<blockquote class=\"is-layout-flow wp-block-quote-is-layout-flow\" style=\"border-left:4px solid #e8622f;background:#fdf1ec;padding:18px 22px;margin:1.5em 0;line-height:1.8\"><strong>&#128161; Quick Answer<\/strong><br>SEBI&#8217;s consultation paper proposed that in-the-money stock options automatically devolve into stock futures at the strike price one trading day before expiry, so positions can be traded or closed on expiry day. Public comments on the proposal closed on 26 December 2024, so check SEBI&#8217;s current rules before trading.<\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-bf0e1e9cf4d1bd4e2de7aeff1ba9a791\" id=\"key-aspects-of-the-proposal\" style=\"color:#023368\"><strong>Key Aspects of the Proposal<\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-311b60c0311832fe5f21d82402e546be\" id=\"1-current-settlement-process\" style=\"color:#ec4d37\">1. <strong>Current Settlement Process:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\" style=\"margin:1em 0;line-height:1.9\"><li style=\"margin-bottom:0.8em;line-height:1.8\">Single stock derivatives are currently settled through physical delivery based on the closing Volume Weighted Average Price (VWAP).<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">OTM options that turn ITM due to market volatility can create large and unexpected physical settlement obligations.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-f41ac1a5b48a64410229ed58068c9b1d\" id=\"2-proposed-changes\" style=\"color:#ec4d37\">2. <strong>Proposed Changes:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\" style=\"margin:1em 0;line-height:1.9\"><li style=\"margin-bottom:0.8em;line-height:1.8\">ITM options will automatically devolve into <a href=\"https:\/\/navia.co.in\/equity\">stock<\/a> futures at the strike price one trading day before expiry (E-1 day).<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">These devolved futures positions can be traded or closed on expiry day (E day).<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Open futures positions at market close on expiry day will be physically settled.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-246f6e946b31a65e0cbd22dd5ba3c2bf\" id=\"3-settlement-mechanism\" style=\"color:#ec4d37\">3. <strong>Settlement Mechanism:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\" style=\"margin:1em 0;line-height:1.9\"><li style=\"margin-bottom:0.8em;line-height:1.8\">Long ITM call options \u2192 Long futures position<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Long ITM put options \u2192 Short futures position<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Short ITM call options \u2192 Short futures position<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Short ITM put options \u2192 Long futures position<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-ea48525a556bffc1b146b038e61badd1\" id=\"4-margin-requirements\" style=\"color:#ec4d37\">4. <strong>Margin Requirements:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\" style=\"margin:1em 0;line-height:1.9\"><li style=\"margin-bottom:0.8em;line-height:1.8\">Delivery margins, currently staggered from E-4 to E day, will apply from E-4 to E-1 day.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Futures margins will apply on expiry day to devolved positions.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-b5d8ed675673596757b033db8e219c49\" id=\"data-analysis-overview\" style=\"color:#023368\"><strong>Data Analysis Overview<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th><strong>Expiry Date<\/strong><\/th><th><strong>Unique Symbols (OTM previous day and ITM on expiry day)<\/strong><\/th><th><strong>No. of Contracts (OTM previous day and ITM on expiry day)<\/strong><\/th><th><strong>No. of contracts turning OTM to ITM in last 45 minutes<\/strong><\/th><\/tr><\/thead><tbody><tr><td>25-Apr-24<\/td><td>137<\/td><td>294<\/td><td>3<\/td><\/tr><tr><td>30-May-24<\/td><td>155<\/td><td>334<\/td><td>4<\/td><\/tr><tr><td>27-June-24<\/td><td>126<\/td><td>253<\/td><td>17<\/td><\/tr><tr><td>25-July-24<\/td><td>125<\/td><td>246<\/td><td>9<\/td><\/tr><tr><td>29-Aug-24<\/td><td>92<\/td><td>128<\/td><td>7<\/td><\/tr><tr><td>26-Sep-24<\/td><td>123<\/td><td>187<\/td><td>5<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\" style=\"line-height:1.8;text-align:justify\"><strong><em>Observation:<\/em><\/strong> There were quite a few contracts turning ITM in the last 45 minutes of trading across six months, highlighting potential settlement risks.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-11f9cf33582512a2b32321300c9530da\" id=\"navias-perspective\" style=\"color:#023368\"><strong>Navia\u2019s Perspective<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\" style=\"line-height:1.8;text-align:justify\">At <a href=\"https:\/\/navia.co.in\">Navia<\/a>, we support SEBI\u2019s proposed changes. This measure enhances market stability, reduces settlement risk, and provides operational clarity. We believe the transition from ITM options to futures simplifies the physical delivery process and safeguards market participants from unexpected obligations.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-615171aeb06f1ba119249eabede9d188\" id=\"call-to-action\" style=\"color:#023368\"><strong>Call to Action<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\" style=\"line-height:1.8;text-align:justify\">SEBI has invited public comments on this proposal until <strong>December 26, 2024.<\/strong> Stakeholders are encouraged to share feedback through <a href=\"https:\/\/www.sebi.gov.in\/sebiweb\/publiccommentv2\/PublicCommentAction.do?doPublicComments=yes\" target=\"_blank\" rel=\"noopener\">SEBI&#8217;s online platform.<\/a><\/p>\n\n\n\n<h3 style=\"color:#ec4d37\">Key Takeaways<\/h3>\n<ul style=\"margin:1em 0;line-height:1.9\"><li style=\"margin-bottom:0.8em;line-height:1.8\">The consultation paper proposed that ITM options automatically devolve into stock futures at the strike price on E-1 day, one trading day before expiry.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Long ITM call options and short ITM put options would become long futures; long ITM put options and short ITM call options would become short futures.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Devolved futures positions could be traded or closed on expiry day, and open positions at market close on expiry day would be physically settled.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Delivery margins, staggered from E-4 to E day at the time of the paper, would apply from E-4 to E-1 day, with futures margins applying on expiry day.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Across six expiries from 25 April to 26 September 2024, between 92 and 155 unique symbols moved from OTM the previous day to ITM on expiry day.<\/li><li style=\"margin-bottom:0.8em;line-height:1.8\">Public comments on the proposal closed on 26 December 2024. Confirm the current settlement rules before acting on this article.<\/li><\/ul>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>DID YOU FIND THIS INTERESTING?<\/strong><\/p>\n\n\n\n<div class=\"wp-block-group is-nowrap is-layout-flex wp-container-core-group-is-layout-8f761849 wp-block-group-is-layout-flex\">\n<p class=\"wp-block-paragraph\"><strong>We&#8217;d love to hear from you &#8211;<\/strong> <\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/form.typeform.com\/to\/bpQ8ZlDc?typeform-source=navia.co.in\"><img decoding=\"async\" width=\"300\" height=\"64\" src=\"https:\/\/navia.co.in\/blog\/wp-content\/uploads\/2025\/01\/Yes-No-Button.png\" alt=\"yes or no feedback form\" class=\"wp-image-8335\" style=\"max-width:100%;height:auto\" srcset=\"https:\/\/navia.co.in\/blog\/wp-content\/uploads\/2025\/01\/Yes-No-Button.png 300w, https:\/\/navia.co.in\/blog\/wp-content\/uploads\/2025\/01\/Yes-No-Button-150x32.png 150w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/a><\/figure>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-104d8c0b4552a7bc0756abdd38ec22b9\" id=\"frequently-asked-questions\" style=\"color:#023368\">Frequently Asked Questions<\/h2>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">What did SEBI&#8217;s consultation paper propose for ITM stock options?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">The automatic conversion of ITM stock option contracts into futures one day before expiry. The stated aim was to mitigate risks associated with sudden price movements causing Out-of-The-Money (OTM) options to become ITM near expiry, leading to unexpected physical delivery obligations.<\/p>\n\n<\/details>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">What is E-1 day in this proposal?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">One trading day before expiry. The paper proposed that ITM options automatically devolve into stock futures at the strike price on E-1 day, with those positions then tradable or closable on expiry day, referred to as E day.<\/p>\n\n<\/details>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">How would a long ITM put position convert?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">Into a short futures position. The paper set out four mappings: long ITM call options become long futures, long ITM put options become short futures, short ITM call options become short futures, and short ITM put options become long futures.<\/p>\n\n<\/details>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">What margin change did the paper propose?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">Delivery margins, currently staggered from E-4 to E day, would apply from E-4 to E-1 day. Futures margins would apply on expiry day to devolved positions.<\/p>\n\n<\/details>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">How many contracts turned ITM close to expiry?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">Across the six expiries listed from 25 April to 26 September 2024, between 128 and 334 contracts had been OTM the previous day and were ITM on expiry day, and between 3 and 17 of those turned ITM in the last 45 minutes of trading.<\/p>\n\n<\/details>\n\n\n\n<details class=\"wp-block-details is-layout-flow wp-block-details-is-layout-flow\" style=\"background:#f1f1f1;border-radius:4px;margin-bottom:10px\">\n<summary style=\"font-weight:600;font-size:17px;color:#1a2332;cursor:pointer;padding:16px 20px\">Are these settlement rules in force today?<\/summary>\n\n<p class=\"wp-block-paragraph\" style=\"padding:0 20px 18px 20px;line-height:1.8;color:#333;margin:0\">This article describes a consultation paper, which is a proposal rather than a final framework. SEBI invited public comments until December 26, 2024. Check the settlement rules currently in force before trading.<\/p>\n\n<\/details>\n\n\n\n<p class=\"wp-block-paragraph\" style=\"font-size:13px;line-height:1.6;color:#777\"><strong>DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit.&nbsp;Full disclaimer: <a href=\"https:\/\/bit.ly\/naviadisclaimer\" target=\"_blank\" rel=\"noopener\">https:\/\/bit.ly\/naviadisclaimer<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Background SEBI issued a consultation paper proposing the automatic conversion of ITM stock option contracts into futures one day before expiry. This move aims to mitigate risks associated with sudden price movements causing Out-of-The-Money (OTM) options to become ITM near expiry, leading to unexpected physical delivery obligations. &#128161; Quick AnswerSEBI&#8217;s consultation paper proposed that in-the-money [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7774,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ub_ctt_via":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[5],"tags":[328,1113,289,8,404],"class_list":["post-7764","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","tag-derivatives-trading","tag-futures-contracts","tag-options","tag-sebi","tag-sebis-consultation-paper"],"aioseo_notices":[],"featured_image_src":"https:\/\/navia.co.in\/blog\/wp-content\/uploads\/2024\/12\/SEBI-Options-into-Futures-1.png","author_info":{"display_name":"Navia Markets","author_link":"https:\/\/navia.co.in\/blog\/author\/tradeplusonline\/"},"jetpack_featured_media_url":"https:\/\/navia.co.in\/blog\/wp-content\/uploads\/2024\/12\/SEBI-Options-into-Futures-1.png","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts\/7764","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/comments?post=7764"}],"version-history":[{"count":13,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts\/7764\/revisions"}],"predecessor-version":[{"id":19254,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts\/7764\/revisions\/19254"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/media\/7774"}],"wp:attachment":[{"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/media?parent=7764"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/categories?post=7764"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/tags?post=7764"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}