{"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":"2024-12-16T10:14:06","modified_gmt":"2024-12-16T10:14:06","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":"\n<div class=\"wp-block-rank-math-toc-block\" id=\"rank-math-toc\"><nav><ul><li class=\"\"><a href=\"#background\">Background<\/a><\/li><li class=\"\"><a href=\"#key-aspects-of-the-proposal\">Key Aspects of the Proposal<\/a><ul><li class=\"\"><a href=\"#1-current-settlement-process\">1. Current Settlement Process:<\/a><\/li><li class=\"\"><a href=\"#2-proposed-changes\">2. Proposed Changes:<\/a><\/li><li class=\"\"><a href=\"#3-settlement-mechanism\">3. Settlement Mechanism:<\/a><\/li><li class=\"\"><a href=\"#4-margin-requirements\">4. Margin Requirements:<\/a><\/li><\/ul><\/li><li class=\"\"><a href=\"#data-analysis-overview\">Data Analysis Overview<\/a><\/li><li class=\"\"><a href=\"#navias-perspective\">Navia\u2019s Perspective<\/a><\/li><li class=\"\"><a href=\"#call-to-action\">Call to Action<\/a><\/li><\/ul><\/nav><\/div>\n\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>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 Out-of-The-Money (OTM) options to become ITM near expiry, leading to unexpected physical delivery obligations.<\/p>\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<p><strong>\u25cf<\/strong> Single stock derivatives are currently settled through physical delivery based on the closing Volume Weighted Average Price (VWAP).<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> OTM options that turn ITM due to market volatility can create large and unexpected physical settlement obligations.<\/p>\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<p><strong>\u25cf<\/strong> 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).<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> These devolved futures positions can be traded or closed on expiry day (E day).<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> Open futures positions at market close on expiry day will be physically settled.<\/p>\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<p><strong>\u25cf<\/strong> Long ITM call options \u2192 Long futures position<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> Long ITM put options \u2192 Short futures position<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> Short ITM call options \u2192 Short futures position<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> Short ITM put options \u2192 Long futures position<\/p>\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<p><strong>\u25cf<\/strong> Delivery margins, currently staggered from E-4 to E day, will apply from E-4 to E-1 day.<\/p>\n\n\n\n<p><strong>\u25cf<\/strong> Futures margins will apply on expiry day to devolved positions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-d6b232276fcb4e14e1a297a20f19db30\" id=\"data-analysis-overview\" style=\"color:#ec4d37\"><strong>Data Analysis Overview<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><td><strong>Expiry Date<\/strong><\/td><td><strong>Unique Symbols (OTM previous day and ITM on expiry day)<\/strong><\/td><td><strong>No. of Contracts (OTM previous day and ITM on expiry day)<\/strong><\/td><td><strong>No. of contracts turning OTM to ITM in last 45 minutes<\/strong><\/td><\/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><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>At <a href=\"http:\/\/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>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\">SEBI&#8217;s online platform.<\/a><\/p>\n\n\n\n<div class=\"wp-block-group is-nowrap is-layout-flex wp-container-core-group-is-layout-ad2f72ca wp-block-group-is-layout-flex\">\n<p>We\u2019d Love to Hear from you-<\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-white-color has-text-color has-background has-link-color wp-element-button\" href=\"https:\/\/form.typeform.com\/to\/bpQ8ZlDc\" style=\"background-color:#03314c\">Share a Feedback<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n<p><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.<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/www.facebook.com\/sharer\/sharer.php?u=https%3A%2F%2Fnavia.co.in%2Fblog%2Fnovember-market-recap-winners-losers-key-insights%2F\" rel=\"noreferrer noopener\" target=\"_blank\"><\/a><a href=\"https:\/\/twitter.com\/intent\/tweet?text=November%20Market%20Recap%3A%20Top%20Trends%20of%20the%20Month&amp;url=https%3A%2F%2Fnavia.co.in%2Fblog%2Fnovember-market-recap-winners-losers-key-insights%2F\" rel=\"noreferrer noopener\" target=\"_blank\"><\/a><a href=\"https:\/\/www.linkedin.com\/sharing\/share-offsite\/?url=https%3A%2F%2Fnavia.co.in%2Fblog%2Fnovember-market-recap-winners-losers-key-insights%2F\" rel=\"noreferrer noopener\" target=\"_blank\"><\/a><a href=\"https:\/\/api.whatsapp.com\/send?text=November%20Market%20Recap%3A%20Top%20Trends%20of%20the%20Month%20https%3A%2F%2Fnavia.co.in%2Fblog%2Fnovember-market-recap-winners-losers-key-insights%2F\" rel=\"noreferrer noopener\" target=\"_blank\"><\/a><a href=\"https:\/\/telegram.me\/share\/url?url=https%3A%2F%2Fnavia.co.in%2Fblog%2Fnovember-market-recap-winners-losers-key-insights%2F&amp;text=November%20Market%20Recap%3A%20Top%20Trends%20of%20the%20Month\" rel=\"noreferrer noopener\" target=\"_blank\"><\/a><\/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. Key Aspects of the Proposal 1. Current Settlement [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7774,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[409,11,7,21,22,53,289,8,404],"class_list":["post-7764","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","tag-converting-in-the-money-itm-stock-options-into-futures","tag-financial-goals","tag-indian-stock-markets","tag-investments","tag-investor","tag-marketperformance","tag-options","tag-sebi","tag-sebis-consultation-paper"],"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\/"},"aioseo_notices":[],"_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":11,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts\/7764\/revisions"}],"predecessor-version":[{"id":7780,"href":"https:\/\/navia.co.in\/blog\/wp-json\/wp\/v2\/posts\/7764\/revisions\/7780"}],"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}]}}