Page 179 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives

Notes Final Settlement for Futures: On the expiry day of the futures contracts, after the close of trading
hours, NSCCL marks all positions of a CM to the final settlement price and the resulting profit/
loss is settled in cash.

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Caution Final settlement loss/profit amount is debited/credited to the relevant CM’s
clearing bank account on the day following expiry day of the contract.
Settlement Prices for Futures: Daily settlement price on a trading day is the closing price of the
respective futures contracts on such day. The closing price for a futures contract is currently
calculated as the last half an hour weighted average price of the contract in the F&O Segment of
NSE. Final settlement price is the closing price of the relevant underlying index/security in the
capital market segment of NSE, on the last trading day of the contract.

Did u know? The closing price of the underlying Index/security is currently its last half an
hour weighted average value in the capital market segment of NSE.

11.3.2 Settlement of Options Contracts

Options contracts have three types of settlements, daily premium settlement, exercise settlement,
interim exercise settlement in the case of option contracts on securities and final settlement.
Daily Premium Settlement: Buyer of an option is obligated to pay the premium towards the
options purchased by him. Similarly, the seller of an option is entitled to receive the premium
for the option sold by him. The premium payable amount and the premium receivable amount
are netted to compute the net premium payable or receivable amount for each client for each
option contract.

Exercise Settlement: Although most option buyers and sellers close out their options positions
by an offsetting closing transaction, an understanding of exercise can help an option buyer
determine whether exercise might be more advantageous than an offsetting sale of the option.
There is always a possibility of the option seller being assigned an exercise. Once an exercise of
an option has been assigned to an option seller, the option seller is bound to fulfil his obligation
(meaning, pay the cash settlement amount in the case of a cash-settled option) even though he
may not yet have been notified of the assignment.
Interim exercise settlement; Interim exercise settlement takes place only for option contracts on
securities. An investor can exercise his in-the-money options at any time during trading hours,
through his trading member. Interim exercise settlement is effected for such options at the close
of the trading hours, on the day of exercise. Valid exercised option contracts are assigned to
short positions in the option contract with the same series (i.e. having the same underlying,
same expiry date and same strike price), on a random basis, at the client level.

Notes The CM who has exercised the option receives the exercise settlement value per
unit of the option from the CM who has been assigned the option contract.
Final exercise settlement: Final exercise settlement is effected for all open long in-the-money
strike price options existing at the close of trading hours, on the expiration day of an option
contract. All such long positions are exercised and automatically assigned to short positions in
option contracts with the same series, on a random basis. The investor, who has long in-the-

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