A European call option gives you the right but not an obligation to buy the underlying at a predetermined price on the expiry of the contract. The number of shares you buy is based on the permitted lot size for all derivatives contracts on a given underlying. Note that call option is a right unlike futures which is an obligation. So, why then are you required to take delivery of the underlying shares if you hold an in-the-money (ITM) call till expiry? This week, we will discuss the delivery obligations related to ITM calls.
Right or obligation?
Before 2019, all contracts in the F&O segment were cash-settled. It is moot if cash-settled system prompted participants to overtrade. In 2019, NSE shifted to a delivery-based system in line with the global markets. It appears that the definition of an option – right but not an obligation – does not hold at expiry in a delivery-based system. Why? If you hold an ITM call till expiry, you are required to take delivery of the underlying. To some, this seems to be an obligation, as in the case of long futures position.
The argument for forcing delivery is compelling. If you do not want to take delivery, you should close the ITM call position before expiry. While that will save you the trouble of having to take delivery of the shares, your broker will levy delivery margins starting four days before expiry. This is because your broker will not know whether you will hold your ITM calls till expiry.
This discussion shows that you will not have delivery obligation in two instances. One, you hold an out-of-the-money (OTM) call till expiry. And two, you close the long ITM call position before expiry. While the second instance is also true for long futures position, the first is not. That is, you must take delivery against the futures contract whether the open position carries unrealised gains or loses.
Of course, it is typical of traders to close their long and short option positions before expiry. Yet, the transition from cash-settled to delivery-based settlement may have affected option trading strategies because of the delivery margins.
Quick tip You do not have to take delivery if you have offsetting equity option positions at expiryOptional reading
Closing your ITM option positions four days before expiry to avoid delivery margins could be suboptimal when your price target is not achieved yet. You must, therefore, consider the cost of locking up your capital in delivery margins when you decide to trade equity options over index options; the latter are cash-settled and do not require delivery margins. Note that you do not have to take delivery if you have offsetting equity option positions at expiry. For instance, a bull call spread where both the long and the short strikes are ITM. So, the requirement to take delivery of the shares against the long strike is offset by the obligation to deliver same number of shares on the short strike. The argument also holds for a bear put spread.
(The author offers training programmes for individuals to manage their personal investments)
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Published on November 15, 2025
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