i want to know for certain strategies like short strangle how many option lots can we write without any considerable impact cost.i looked into the data for otm options the open interest is around 10 lakhs to 15 lakhs quantity .by 5 % rule we will be able to write around 1000 lots but this will significantly raise the impact cost .anyone who had write options previously can reply.
You can write as many as you want but if you trade with Zerodha(or some very popular broker) then there is a practical limitation that you might encounter. Due to exchange designated rules a broker can only have a fixed % of the total market wide positions in BankNifty Options if you want to write OTM strikes beyond +/- 300 points(approx.) of the BN spot price at that instance… This is +/- 300 points was an approx figure that Zerodha support personnel told me when I had faced order rejection due to this rule. Zerodha has a large customer base so this limit gets reached often quickly as far OTM strikes are lucrative to write. Here is a link that has discussed this problem:
yeah .i face the same problem so i switch to few new discount brokers and i think this problem is kind of solved but my real problem occurs while writing more than 100 lots the impact cost sometimes takes up 20 to 30% of the profit .if u had any suggestion it will be heartly welcomed.thanku
What’s impact cost? Do you mean the Spread cost in picking up in multiple orders or something else?
yes the spread cost though the bid ask is quite fair but when big lots are placed at market order there is considerable amount of profit get losed .
Ok. Can’t do much about it… same problem with Nifty Options aswell when you want to acquire large quantities like 25-30 lots or more… spread cost losses are there always for larger quantities…