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Market Intelligence › Basic Terminologies
The difference between cash settlement and delivery settlement, and the decision before expiry
Published by The Retail Trader · JUL 22, 2026 · Derivatives (F&O)
Index derivatives settle in cash, but stock derivatives do not. A position left open until expiry requires you to take or give actual shares, and the full amount for that is demanded from your account.
In cash settlement, only the difference of profit or loss is transferred. No share changes hands, so you never need the full contract value in money.
In physical settlement, you need the full contract value in money or the full shares. Even one lot can be worth lakhs, and that demand arrives suddenly around expiry.
This is why brokers tighten their rules near expiry:
• Margin starts rising a few days before expiry, a little each day.
• An in the money option getting exercised also creates a delivery obligation.
• If funds are short, the broker can square off the position on its own.
• If you cannot make physical delivery, both an auction and a penalty apply.
Letting stock options run to expiry the way you would with index options is the most expensive mistake. If taking or giving delivery is not your plan, closing the position before expiry has to be the whole plan.
This article is for education only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.