Additional margins are blocked for your existing long option position if the moneyness of the contract turns from out-of-the-money (OTM) to in-the-money (ITM). As per the
physical settlement policy,
all ITM positions require you to maintain physical delivery margins in the last week of expiry. The exchange charges physical delivery margins as a percentage of applicable margins
(VaR + ELM + Adhoc margins)
of the underlying stock, which are levied from expiry minus 4 days for long ITM options in the following manner:
| Day (BOD-Beginning of the day) | Margins applicable |
| E-4 Day (Wednesday BOD) | 10% of VaR + ELM +Adhoc margins |
| E-3 Day (Thursday BOD) | 25% of VaR + ELM +Adhoc margins |
| E-2 Day (Friday BOD) | 45% of VaR + ELM +Adhoc margins |
| E-1 Day (Monday BOD) | 25% of the contract value |
| Expiry day (Tuesday BOD) | 50% of the contract value |
Due to market volatility, stock option contracts trading near the spot price can quickly turn in-the-money (ITM) on expiry day (Tuesday). This carries a high risk of requiring compulsory physical settlement. To safeguard against this risk, Zerodha blocks a 25% physical delivery margin of the total contract value for these near-the-spot out-of-the-money (OTM) contracts on expiry day.
You must maintain sufficient margin in your trading account; otherwise, you may face a margin shortfall and penalties, and Zerodha may square off your open positions.