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What is Physical Settlement in NSE Options?

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Physical settlement (in F&O) means that an eligible derivative contract is settled through the “actual delivery” or receipt of the underlying security, rather than settling only the difference in cash. 

Physical vs Cash Settlement in Futures in India

BasisPhysical SettlementCash Settlement
Settlement MethodUnderlying securities are delivered or receivedOnly the monetary difference is settled
Delivery RequirementApplicable positions can result in delivery obligationsNo delivery of the underlying
Funds/ SecuritiesAdequate funds or securities may be requiredCash settlement amount is required
ExampleApplicable stock derivative settled through sharesIndex derivative settled through cash
Main ConsiderationDelivery obligation at expiryFinal settlement value

Note: The exact settlement treatment depends on the type of derivative and exchange rules. Traders should also check the applicable contract specifications before holding positions until expiry.

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