Bought my first Options trade

I took positions in Options for the first time. Fearful of loss more than I was informed. Also cash requirement at settlement. So, I need help. I am using Sensibull.

Here is my trade,

  1. As Call Spread, yesterday: ITC
    Buy 29 Jul 2021 210 CE, Price 2.95
    Sell 29 Jul 2021 217.5 CE Price 1.05.

  2. Today, ITC Again
    Buy 26 Aug 2021 210 CE Price 6.1


My doubts:
A. Is this 1st trade also require cash on the Expiry Day? Do I need to buy or provide? How many shares do I need to buy or provide?
B. Do I need to buy stocks in the 2nd Trade if I stay at the end of Expiry Day? How many?
C. Loss was limited as said by Sensibull. Is that money loss 100% sure? or there can be a case where my loss would be more?

Recently, I felt I understood something of Options. So, I decided to enter the water to know more about it.

Sensibull warns me of liquidity issues far away expiry in the big counter ITC. I was looking to buy for SEPT expiry but Sensibull said there is nothing. It was blank. If there was some and I could take entry then what is the chance of liquidity coming to Options expiry?

I got this and after that, I am concerned about cash. I deploy all my cash in stocks. BUT, I do not have ITC stocks in my demant.

@Satya_Prakash

Physical delivery happens only if your option position is in ITM.

In the given call spread,
If ITC closes above 210 but below 217 which makes your buy position ITM ( In the money) and you don’t close your position - can go for physical delivery shares. Margin requirement may also go up on expiry day.

if ITC closes above 217.5 which makes both the position ITM ( In the money). In this case, you don’t have to worry about physical delivery if you don’t square off your position.

if ITC is trading above 210 on the expiry and your option is ITM (in the money), if you don’t square off and let it exercise, your position will go under physical delivery.

if you talking about your 1st trade. Loss is limited because it is a hedged position.

Please check this link to know more

Check this link to know more about Physical Settlement on Equity Derivatives

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Thank you @Kalpesh. Reading material is there but reading everything about Options are cumbersome. I was finding it very tough to remember. I thought to do some practical but in a limited way.

Sensibull has said limited Loss in 2nd trade as well. Today, it is showing Rs 19,520 Max loss possible which is the premium I have paid. Is this not right?

So, after your reply, I am thinking I should have Sell Call Near 240 as well.
I have given Target 240 and bullish about ITC in Option builder.

If you do not mind, can you reply why Option Builder has suggested me 26 Aug Call 210 CE when I have given 240 Target in Aug series? Aug series was chosen by me.

yes, Agree

it is correct, When you buy an option - your loss is limited to the premium you pay.
you bought it @ 6.1 and if the market is against your position this will come down to 0.05. hence max loss you make is the premium you paid which is Rs 6.1 per unit. ITC one lot = 3200 So 3200*6.1. = 19520.

But when you sell an option - your loss can be unlimited if the market is not moving in your direction.

@Sensibull might be able answer this one.

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Does not it matter 26 Aug Call 210 CE Vs 26 Aug 240 CE on profit? I understand Option price will be different. But, if ITC has crossed 240 then?

If ITC crosses 240 by then

The premium for 26 Aug Call 210 CE will be much higher than Vs 26 Aug 240 CE.
Premium = Time Value + Intrinsic Value.
Intrinsic value is the difference between spot and strike if the option is ITM. OTM option has 0 intrinsic value.
Intrinsic value for 210 CE will be higher than 240 CE in this case. hence profit will be higher for 210 CE.
As soon as you are near to expiry the time value of the position goes down.

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I was trying to understand F&O but never I could. in between, I learnt that Options are good for retail. So this time I tried to understand Options. I got the Sky View Trading video on YouTube which gave me confidence. Tools showed there also has a lot of facilities. Earlier, everywhere it was only manual. Sensibull is also having most of those which gave me the confidence to try. Once I complete these two trades correctly then I will have more fire to learn :slight_smile:
Sensibull is concerned about liquidity. It suggested to me, not to enter Stocks as stocks can be tough for new traders and liquidity can be a concern. But, I chose stocks.

Thank you for your help. Thanks a lot.

Yes, because there is the risk of physical settlement if we don’t squareoff our position because expiry. And sometimes many stocks reach their MWPL because of which trading in f&o get banned and i think zerodha also not allowed to buy stock options two days before expiry…
So index options are much safer because they are cash settled…

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I can understand that options sometimes become very much of a tedious task but trading in it is more difficult. So, if you get stuck anywhere just contact the customer care of your broker. That way you can clear your confusions.

What is Funds needed and Margin Needed?
Funds needed: 32,262
Margin Needed: 29,362

I think Funds Needed is the amount Zerodha has cut from my account. But for Margin needed, through tooltip, it asked me to maintain the cash to remain in the trade. But, I did not keep this amount and still, I am in the trade. So, what is missing here?

Please help which of the 3 trade required funds. Two is under Call Spread and one is seperate. These are not bought today so why today it asked to add funds! How do I know how much I need to keep?

I got the SMS:

EQ margin utilisation for XXXXXX has reached 146.34% of available balance. Add funds immediately on https://zrd.sh/funds. Positions can be squared off if margins are insufficient. -ZERODHA

@Sensibull