Daily premium settlement

An option buyer pays a premium; the writer receives it. Someone has to actually move that money every day, for every client and every contract.

Daily premium settlement is that process. The clearing corporation nets what each client owes and is owed in premium, and settles the net figure the next working day.

Chapter 7, section 7.3.1 (Settlement of options contracts), describes two kinds of settlement for options: daily premium settlement and final settlement. For daily premium settlement:

• Amounts payable and receivable as premium are netted to compute a single net premium payable or receivable per client, per option contract.
• A clearing member with a net premium payable position pays that amount to the clearing corporation; the clearing corporation passes it on to clearing members with a net premium receivable position.
• The amount is credited or debited directly to the clearing member's clearing bank account on T+1, where T is the trade date.

This is separate from the final exercise settlement, which happens only when an in-the-money option is exercised or expires.

On Monday (T), client Ramesh buys one Nifty call option, paying a premium of Rs 25,000. On the same day, another client of the same clearing member, Sunita, writes a put option and receives a premium of Rs 18,000.

At the clearing member level, the two are netted: Rs 25,000 payable minus Rs 18,000 receivable leaves a net premium payable of Rs 7,000. The clearing member pays this Rs 7,000 to the clearing corporation, which credits it onward to the clearing member on the receivable side. This entire flow is completed on Tuesday (T+1) through the clearing bank accounts — one working day after the trade, not on the trade date itself.

Chapter 7, section 7.3.1, introduces daily premium settlement as the first of two settlement types for options and gives the T+1 timing. Expect a question distinguishing daily premium settlement (paid on T+1, every trading day) from final exercise settlement (paid only at expiry or exercise).

• Premium settlement happens on T+1, not on the trade date T itself.
• Netting is done per client, per option contract — not lumped across all of a clearing member's clients into one figure before reaching the client level.
• Daily premium settlement is not the same as mark-to-market settlement on futures — futures carry a daily MTM settlement on open positions, while options settle the premium itself daily and settle intrinsic value only at final exercise.