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Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will deliver that security you sold on settlement without actually owning the security or going through SLB mechanism?

From who I collect the profit then when I sold security, that I haven't previously borrowed from other participant (which would I have to return for price on return time). And is that possible to do intraday?

Thanks a lot, Jan

  • From your point of view, settlements are transacted with the clearing house, not directly with other market participants. Equity derivatives are tradeable instruments, so you can trade them any time the market is open - "intraday" or otherwise. – Nick R Jul 22 '17 at 17:56
  • Sure I can. But how can I short them? Are shorts on India futures transacted through SLB or its naked short? – yety Jul 22 '17 at 18:03
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    I think you may be confusing "Equity Derivatives" (equity futures and equity options) with "selling short equities" through the SLB mechanism. Derivatives do not rely on any SLB. Taking a short position in an equity futures derivative is not the same thing as selling that equity short. – Nick R Jul 22 '17 at 18:12
  • Getting there! Thank you! So on futures you just sell and then you buy to cover before expiration, am I right? – yety Jul 22 '17 at 19:01
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    Yes, that's right. Futures are "cleaner" than shorting through the SLB mechanism. – Nick R Jul 22 '17 at 19:29
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Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will deliver that security you sold on settlement without actually owning the security or going through SLB mechanism?

In Future and Options; there is no concept of short selling. You buy a future for a security / index. On the settlement day; the exchange determines the settlement price. The trade is closed in cash. i.e. Based on the settlement price, you [and the other party] will either get money [other party looses money] or you loose money [other party gets the money].

Similarly for Options; on expiry, the all "In Money" [or At Money] Options are settled in cash and you are credit with funds [the option writer is debited with funds]. If the option is "out of money" it expires and you loose the premium you paid to exercise the option.

  • Well, not really sure about that. See zerodha.com/varsity/chapter/shorting "Shorting a stock in the futures segment has no restrictions like shorting the stock in the spot market. In fact this is one of the main reasons why trading in futures is so popular." – yety Jul 24 '17 at 8:57
  • @yety It is technicalities and terminologies. Party A; can create a futures contract and sell securities to Party B. It is immaterial whether Party A has the securities or not. This is termed as shorting by Party A. Scenario 1: On expiry; cash changes hands between A & B. Scenario 2: Now before Expiry, Party B sells futures contract to Party C. So Party B has made a profit or loss and exited. On Expiry cash changes hands between A & C. – Dheer Jul 24 '17 at 11:25

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