It happens only if its ITM .
But, it means a lot of inconveniences to option writers. In above case, if Reliance expired above 1000, then option writer need to buy 10,000 stock of reliance as delivery for physical settlement of 10 lot 1000 CE(if there is no Reliance holding in DEMAT). This will open a new unwanted trade with larger risk and more tax burden. And there is a chance of next day gap down too from such uncomfortable Rs 1000+ closing.
We just see the similar incident, how reliance closed near 1000 next day to expiry and then a big gap down and next closing around 960. Suppose such Friday big move happened on Thursday, hence 1000+ closing and physical delivery above Rs 1000 and next day big gap down and follow up down move around 960. No option writer would want such unwanted risk buying a stock at the very high price as a result of wrong trade of squaring off writing CE! Things are getting too much complicated. We must add up the extra delivery STT cost for unwanted 2nd trade too.
SEBI must remember if something is working good(cash settlement) we don't need to fix it.
Last edited: