I have 250 shares of Reliance. I want to sell/ write a call (lot of 250 shares) of Reliance on the basis of these shares.
Let’s say the current share price of Reliance is Rs 2000, I want to write a call for Rs 2200 strike price and the premium for that call is currently Rs 20.
Few questions:
Once I sell the call, will I get Rs 250 x Rs 20 = Rs 5000, immediately in my Zerodha account?
Given that I hold corresponding shares, do I need to provide any margin?
In case the answer to question 2 is yes, and I do need to provide a margin. In that case, can I pledge my shares instead to furnish the entire margins?
What is the cost for me, in case I pledge the shares?
In case the option goes ‘In The Money’ at the expiry, will the shares be auto-debited from my account?
In case I need to provide margins despite my holdings, will the margins keep on fluctuating based on the underlying changes in share price/ premium? In case there is a point, when my fund balance is lower than the margin requirement, what will happen?
Yes, the premium will be immediately credited to your account. However, on T-Day, the premium received can only be used to buy options, you’ll be able to use the same for all other purposes from the next day.
Yes, you’ll have to provide margin for shorting option.
You can pledge the shares and use the collateral received as margins. However, minimum 50% of the margins have to come in cash or equivalent and remaining 50% can come from collateral margin. Excess use of collateral margin (ie. greater than 50% will attract interest of 0.05% per day). More details here.
The charges for pledging are Rs. 30 + GST, you can check the pledging process here.
For physical settlement, you’ll have to unpledge your shares before expiry day.
The margins are dynamic and keep changing according to volatility and price. In case you’re not maintaining sufficient margins, you’ll receive margin call to add funds, failing which RMS can square-off your position.
Thanks for the prompt response. Few follow-up questions:
If I can use only 50% collateral margins, and provide 50% margins in cash. Does that I can provide any security for pledge and get the required margin? Seems like I can’t do a fully covered call - is that true?
Apart from physical settlement, what other options do I have?
How do you provide margin calls - email/ call/ SMS? How much time do I get to add funds post the margin call?
How much money do I get from pledging? Is it a certain percentage of the share value, at the time of pledge? What happens if the share price falls below that %age?
Yes, you can pledge any security for collateral margin. You can check the securities that you can pledge here.
Can you elaborate?
If you don’t want to go for physical settlement, you can also square-off your position before expiry. The difference between the price at which you shorted at and the square-off price will be your P&L.
You’ll receive both email and SMS. Ideally you should add the funds immediately.
The collateral margin you get depends on haircut value of the security. It can vary for each one.
Eg. You have 1 share of Reliance, the current value is 2000 and haircut is 10%. The collateral margin you’ll receive will be 1800 (2000 - 10% haircut ie. 200).
The collateral value you have changes according to haircut and price of the security you’ve pledged.