How to Avoid Physical Delivery on Expiry Day in Stock F&O
Blog by Aliceblue News Desk
13 November 2026
10 minutes
You buy a stock call option for ₹6,000. On expiry day, it ends in the money, and your broker asks for about ₹4.6 lakh to buy the shares. To avoid physical delivery on expiry day, close or roll over your stock futures and in-the-money stock options before the contract expires. Index contracts like Nifty settle in cash, so they carry no delivery. This guide shows which positions deliver, when margin rises, and how to check that you are out.
Quick Answer
Square off your stock futures and in-the-money (ITM) stock options before expiry, and no shares will change hands. Out-of-the-money options expire worthless, and index options settle in cash. If you choose to hold a stock position through expiry, keep the full contract value in your account, or the shares in your demat account if you are short.
Table Of Contents
Table of Contents
What Is Physical Delivery in F&O?
Physical delivery means actual shares move between buyer and seller when a stock derivative expires, instead of only the profit or loss being paid in cash.
SEBI’s circulars of April and December 2018 made this mandatory for all stock derivatives. The rollout was phased, and the last group of stocks moved over from October 2019 expiry. If you are long, you pay for the shares, and they come into your demat account. If you are short, you must hand over shares.
You pay a small premium to buy an option, but delivery is based on the value of every share in the lot. That is why a small trade can turn into a large payment.
Which Positions Lead to Delivery?
Position held at expiry | Delivery? |
Stock futures, long or short | Yes |
Stock option, ITM | Yes |
Stock option, OTM | No, it expires worthless |
Index futures or options (Nifty, Bank Nifty) | No, cash settled |
Index derivatives are cash settled, and OTM stock options carry no delivery obligation.
A call is ITM when the stock trades above the strike price. A put is ITM when the stock trades below the strike price. ITM simply means the option has value at expiry.
NSE withdrew the Do Not Exercise facility for stock options on 29 March 2023, and all ITM stock options are now exercised at expiry. Squaring off is the only way out.
Stock contracts on NSE expire on the last Tuesday of the month, a schedule that began with September 2025 expiries. If that Tuesday is a trading holiday, expiry moves to the previous trading day.
How to Avoid Physical Delivery on Expiry Day
You have three routes, listed from cheapest to most expensive.
- Close the position before expiry. If you bought a call, sell it. If you sold a future, buy it back. A closed position has no delivery.
- Roll over. Close the current month’s contract and open the same position in next month’s contract. You pay charges and margin again, but you keep your view on the stock.
- Fund the delivery on purpose. Keep the full contract value in your account if you are long, or the shares in your demat account if you are short. Do this only if you want to own the stock.
After you place the exit order, confirm it worked.
- Open your order book and check that the order shows Complete, not Open or Pending.
- Reload your positions and check that the net quantity is zero.
- Look at your funds page and check that any delivery margin block has been released.
Exit early in the day. One guide suggests finishing by 3:00 PM on expiry day, and before noon if you can, because spreads can widen sharply late in the session. Your broker sets its own deadline, and some brokers start squaring off open positions from the day before expiry.
Be careful with hedges. A long future and a long ITM put on the same stock and expiry can net off, but only when both are ITM. If one leg ends OTM, the other still delivers.
How Margin Rises Before Expiry
Delivery margin starts four trading days before expiry, called E4, and rises every day. Navia states that the NSE minimum is 10%, 25%, 45% and 70% of the applicable margin over those days, and that brokers may ask for more.
Here is Navia’s ladder for a ₹1,00,000 ITM contract, shown as one broker’s example. Alice Blue’s figures may differ, so check them before you plan a trade.
Day | Margin blocked |
E4 | ₹1,800 |
E3 | ₹4,500 |
E2 | ₹8,100 |
E1 | ₹25,000 |
Expiry day | ₹50,000 |
The requirement went from ₹1,800 to ₹50,000 in four trading days. If your funds page shows a delivery margin line, your position has been flagged.
Expiry Week Timeline
- One week before: list every stock future and stock option you hold. Skip index positions.
- E4: decide whether to close, roll, or fund. Delivery margin starts here.
- E3 to E1: watch your funds page. Close or roll if you have not already.
- Expiry morning: exit any ITM option still open. Do not leave it to the last hour.
- Day after expiry: check your ledger and demat account for share or payment entries.
Example With Numbers
These numbers are for illustration. Check the live price, strike, and lot size before you trade.
Infosys traded near ₹1,151 on 12 November 2026, and market data sites show a lot size of 400 shares. Say you buy one lot of a call option with a ₹1,150 strike at a ₹15 premium.
Premium paid: 400 × ₹15 = ₹6,000. On expiry day, Infosys closes at ₹1,175, so the call is ITM.
Case A: you sell the option the day before at ₹30.
You receive 400 × ₹30 = ₹12,000, so profit is ₹6,000 before charges. STT on the sale is 0.15% of ₹12,000, which is ₹18.
Case B: you hold to expiry.
You must buy 400 shares at ₹1,150, which is ₹4,60,000. The ₹6,000 premium is already spent. With ₹50,000 in your account, you are ₹4,10,000 short.
STT on exercise is 0.15% of the intrinsic value. Here the intrinsic value is (₹1,175 − ₹1,150) × 400 = ₹10,000, so STT is ₹15. The tax is small. The real cost is the ₹4.6 lakh payment you must fund.
Varsity notes that to take delivery, you must bring in 100% of the contract value. If you cannot, the broker may close the position at a poor price.
What Happens If You Cannot Pay or Deliver?
Your situation | What can happen |
Long, not enough funds | The broker may square off the position, or your account may go into debit. |
Margin shortfall | A penalty applies, and the broker may square off with any loss on you. |
Short, no shares | The exchange can run a close-out auction, and you bear the price difference and charges. |
Cannot exit because nobody trades your strike | An ITM option left open carries delivery obligations. |
Penalty rates differ by broker and change over time, so ask for the current charges before expiry week.
Key Features
- Only stock contracts deliver. Index F&O settles in cash.
- Delivery needs the full contract value. Futures margin does not cover it.
- Margin rises from E4 and climbs each trading day.
- STT changed on 1 April 2026. It is 0.05% on futures sales, 0.15% on option premium sold, and 0.15% of intrinsic value on exercise.
- Short sellers need shares, not cash.
Advantages
- Knowing these rules lets you decide whether you end up owning the shares. You avoid forced square-offs at poor prices, auction costs, and debit balances.
- You also keep control of your exit. In the Infosys example, selling a day early kept a ₹6,000 profit and used no extra capital. Rolling over lets you stay in a trade you still like without any delivery.
Risks and Limitations
- Exiting early can cost you a late gain. If you are short, you give up the last days of time decay. Trading also thins out near expiry, so spreads widen and exits can cost more.
- The behavioural risk is just as real. Many beginners hold for one more day, hoping the price turns, and then expiry decides for them. Selling a stock call without owning the shares adds a financial risk, since you must deliver if it ends ITM..
Tips for Beginners
- Set a reminder for E4 in every expiry cycle.
- Start with index options if you do not want delivery at all.
- Check the order book after every exit order.
- Keep spare funds in your account during expiry week.
- Roll over early if you still like the trade.
- Read your broker’s margin and charges pages before you size a trade.
- Treat a delivery margin block on your funds page as a warning to close or roll.
Cash Settlement vs Physical Settlement
Parameter | Cash settlement (index F&O) | Physical settlement (stock F&O) |
What moves | Profit or loss in rupees | Shares and full payment |
Capital at expiry | Margin | Full contract value |
Delivery risk | None | Yes, for futures and ITM options |
Penalty risk | Low | Auction risk on short delivery |
Best for | Short-term traders | Traders who can fund or deliver shares |
Common Mistakes to Avoid
- Forgetting a small stock position. One forgotten future can turn into a large bill. Check your positions daily in expiry week.
- Holding a long ITM option without funds. The broker may close it at a poor price. Exit early or fund it.
- Assuming a hedge cancels delivery. It works only if both legs are ITM.
- Selling a call without shares. If it ends ITM, you must deliver. Close it first or hold the stock.
- Relying on Do Not Exercise. It was withdrawn in 2023, so square off instead.
Who Should Use Stock F&O?
Traders who watch positions daily and keep spare funds are better placed to handle stock F&O. Investors who already own the shares, or truly want them, can hold through expiry on purpose.
Beginners with small accounts should stay with index options until they understand delivery margin. A single lot can need several lakhs for delivery, far above the premium paid. Anyone who cannot check positions in expiry week should avoid stock F&O.
Conclusion
Physical delivery happens only when stock futures or ITM stock options stay open at expiry. Mark E4 on your calendar, because delivery margin starts rising from that day. Close or roll your position before then, exit early on expiry day, and check your order book to confirm it went through. In the Infosys example, selling the day before kept a ₹6,000 profit, while holding turned the same trade into a ₹4.6 lakh payment. If you want a stock position through expiry, decide that on purpose and keep the money ready.
Frequently Asked Questions
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