Hi Guys, I had similar doubts but sadly even after reading through all this I am not sure how this will actually work in real time.
This aside, there have been so many of my own issues answers to which is very tricky to find apart from trying things out in real market. There are so many such doubts which have been discussed in numerous of such tradingqna threads over so many years. I suggest why donāt you guys make detailed blog posts on each of such processes and doubts so that newbie investors get the hang of everything in a comprehensive manner and donāt burn money while learning these things? I know Varsity is there but this is something different we are talking about in these threads, the exact answers to whom no Varsity, no video or no content on the internet contains. @siva@nithin@ShubhS9
I believe this can also be a good source of traffic - so much content throwing so many users which might convert to be Zerodha users. Request you to give it a thought.
While peakut shares his query, Iāll take this opportunity and slip in mine (on a slightly different tangent), since you are answering.
To set the context, Iāll start with the below 2 rules from Larry Hite:
If you donāt bet, you canāt win.
If you lose all your chips, you canāt bet.
Iām a very conservative trader trying to make 8-10% annual returns from index options selling, using long term naked puts (1-3 yrs away, cash secured) & short term deep OTM naked calls (1-2 days to expiry).
Now coming to my query. Suppose thereās a flash crash, with nifty falling 10% (or worse) in minutes and it recovers completely within an hour. Now, during that 1 hour, Iāll get margin calls for my mtm losses in the long term puts. My past experience has been that during high volatility, thereās very little time to react to those margin calls (have had my positions auto-squared off within minutes). My worry is that what if I fail to add the required margins before the RM team squares off my positions only for nifty to recover back completely (and not allowing me time to buy the underlying)? Will my cash secured puts simply become naked puts?
Is there a way I can get into an agreement with zerodha to have them never square off my NRML positions and I pay short margin penalties (till my pledged holdings are sufficient to cover for any default from my end).
Feels like Iām working with loose ends and not prepared enough to ensure I stay true to rule 2 from above.
Margins get recalculated based on changes in IV and sometimes because of impending HV.
So, if you have a margin call at 10.30 am and you do not honour itā¦ nothing happensā¦ except that your positions will be monitored for possible square off, because of leverage factor.
The problem with Zerodha and India brokers is that the rules change arbitrarily and it cannot be explained even with excel.
In normal markets, this is never an issue. But you are right; on days when markets fall, say, upwards of 5%, your margin requirement for a short option may go up, leading to our risk management team squaring positions. As per new regulations, we canāt pass an upfront margin penalty to the customer, so that would mean that we canāt get into any arrangement to allow this position even if you are ready to pay the margin penalty.
The only way to cover this risk is to never trade with the entire capital. Always keep sufficient free funds to cover the worst-case scenario. By the way, being conservative in the long run will also help increase the odds of winning when trading.
Got it, thanks. Itās just that preparing for the worst case kills all the returns. Guess thatās the nature of the game.
If SEBIās objective is to safeguard investorās interests, Do you think a regulation around auto-square off might also be around the corner (like minimum reaction time/ no square-offs before 3:20/ lot size determination ) - considering itās completely arbitrary and brokers have vested interest here with all the related charges. (Just wondering, not sure if this can be called a regulatory foresight though :).
The regulator would want squareoffs to be done as soon as possible; they would wish for markets to be safer than less safe. I think if brokers today give time till 3.20, it is more to allow customers to transfer additional funds. Otherwise, if you think about it, why even give time till 3.20 pm if the incentive is to generate brokerage?
Sorry this thread was missed. What I meant here was Varsity is a bit theoretical, while Tradingqna is like a pile of bodies where one has to do a lot of effort, filter out all the rant, endure all divergences from the topic, that too only if one manages to find the right thread, to get exactly what one wants.
I am talking about a product which contains a gist of Tradingqna threads, not threadwise but topicwise.
Letās say one topic can be āOrder Execution in Hedged Positionsā. Now this topic could contain a gist / knowledge squeeze of all nuances which are associated with this topic, currently spread across numerous tradingqna threads. Hope that made sense.
The margin for FNO is updated periodically by the stock exchange based on various factors such as market volatility, liquidity, and risk. The changes are communicated to traders through circulars or notifications issued by the exchange. Traders should stay informed about the latest margin requirements to avoid margin calls and potential liquidation of their positions.
As per rules stipulated by the exchange, An extra 3% extreme loss margin is applied for those deep OTM contracts which are more than 10% away from the previous day closing price of the underlying.
Hence, Selling 17000 PE would require higher margin than say, 17500 PE which is still within 10% from previous dayās close.
@Meher_Smaran A follow-up question.
Letās say I have overnight positions in a OTM PE strike which was within 10% from Spot on Thursday, but after the up-move on Friday, it now went beyond the 10% threshold. In this case, the additional 3% Extreme Loss Margin will apply from Monday? Or will it apply from EOD Friday?
Also, I notice a discrepancy in the SPAN margin blocked in the āFunds Statementā in Console and the SPAN margin blocked in āFundsā tab in Kite. Why does the āFundsā tab in Kite show a significantly higher SPAN margin?