I have a long position of 62000-strike call option on silver mini of February 2023 expiry. Since the liquidity of commodities options is very low, what will be the settlement price on the expiry? Will it be settled like equities?
Silver mini futures on the Multi Commodity Exchange (MCX), which is the underlying for the option that you hold, closed at ₹68,435 on Friday. Going by this, your option is now in-the-money (ITM). In general, on expiry, ITM long call options will devolve into the futures contract which means, if your option remains ITM on expiry — February 17, your option will be converted automatically to silver mini futures. Such futures positions will be considered to be opened at the strike price of the exercised options. So, if you hold the option till expiry, your option contract will devolve into a silver mini future with a purchase price of ₹62,000 — the strike price of the option that you hold. Note that your margin obligation can go up in this case.
In case your option expire close-to-the-money (CTM), the contract will be exercised only if you give such an instruction being the long position holder of the option. Note that on giving ‘explicit instruction’, you can opt for cash settlement if the option is ITM or CTM. Option series closest to the Daily Settlement Price (DSP) of futures will be considered as at-the-money (ATM) options. ATM options along with two option series each having strike prices immediately above and below ATM option shall be referred to as CTM options.
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