How does selling of option work

General
1

@Bhuvan
Why do we need to have a huge margin (Fund in our account) to sell an option while we are supposed to get money by selling?
Huge money is required only in zerodha or all broker ask to have money in the account?
Please clear my doubt

2

Everywhere the same, can check this before writing options.

3

Becoz when u buy an option for lets say premium of 10 rs, what is max loss u can incur? The max loss is 10 rs if premium goes to zero. So its LIMITED DOWNSIDE

But if u sell an option for same premium of 10 rs, what is max loss u can incur? The max loss can be anything, what if premium goes to 100 rs, or 1000 rs, or 10000 rs. So its UNLIMITED DOWNSIDE.

Thats why any broker will ensure margin for Option selling, whereas same not reqd for Option buying

4

Thanks :slight_smile:

5

What if I take position in buy and sell of call option together where strike price of buy<sell? Still, Do I need to block full margin even though my sell option is covered by buy option?

6

Yes, if any benefit is coming via full position it will automatically reduce in the margin blocked, if not one side loss is not compensated by other side profit for options.