Option Writing margin

General
1

Query Reagarding Option Writing/Selling
If a client is sorting option from available margins and due to reason his margin utilised exceeds say 110 to 120 percent that is his margin availble becomes negative . In that case if client is ready to pay short option penalty then whats the reason for broker to square off his position .Also i don’t think this will increase much risk for broker .

2

How to know client is ready to pay penalty? one client may not want to? till what % of margin shortfall broker should allow client for margin shortfall? what if next day due to some event client lost more money than he has? who will pay it? if broker doesn’t manage risk properly it can lead to systemic risk, all other clients who has money also can be in a fix. Continuously if a broker is reporting short margin he will be under radar of regulators. I hope you got it now.

1 Like
3

What is zerodha’s policy on this. I mean till what percentage of shortfall does it allows on an average on normal days

4

We recommend to maintain 100% on all days.

5

thanks for quick reply but i have got one more doubt that like you said that broker doesn’t managing risk can cause risk to whole market then suppose xyz is a broker or someone having alpha membership getting overleveraged or sort of FnO full margins frequently then it can cause risk to whole market.Then how does nse make sure that no broker is excessively leveraged and will be solvent for his or her obligations.

6

Everyone has to submit full span and exposure to initiate a trade, so even if any broker is offering more leverage it means broker money is blocked in full , to carry position broker need to show that money is blocked from client account hence leverage is offered only for intraday trading.

7

What If position is moving drastically against the broker in case of propreitory trades or his clients and neither he is cutting his/or clients position and not pumping in additional margins .
Thanks

8

Exchange will keep on blocking more money, if broker breached his limit( around 80 or 90% of total) exchange will stop allowing new positions from that member and only position square off is allowed.