Had an iron condor position which required margin of around 35L. Today, post SEBI changes, it has gone up to 62L! 80% increase in margin. And this is a hedged position where my max loss in any scenario will only be 5-6L!!
What is the point of such changes if it’s going to cut returns of hedged option sellers in half? I thought the idea was to avoid speculation on naked trades and option buying. Does govt treat hedged strategies also as gambling?
Positions held were
23000 PE Sell
22800 PE Buy
24000 CE Sell
24200 CE Buy
21-Nov expiry
My position was with 5paisa where 60L margin was asked. Checked on Zerodha margin calculator, it is also showing same values. It is not specific to Zerodha.
This isn’t an issue specific to Zerodha. An additional 2% margin is being blocked for all short positions irrespective of whether the position is hedged or otherwise. This is as per the recent SEBI circular:
The increase in ELM by 2% is on the entire contract value. So for every lot of nifty option being written (assuming nifty is at 23000, lot size 25), margin will go up by ~12-13k.
“On the day of option contracts expiry, given the heightened speculative activity around option positions and the attendant risks…”
This is not well thought out. It should not be implemented on those who are already holding those positions since a day or more, especially when so closely hedged. Why? Becasue SEBIs intention was to target extreme speculative activity on expiry day. But they ended up targeting those who may be holding iron condors from last Friday or even the beginning of the month. Their condors may have lost most of the value and their selling price and/or strike may be so high/far apart that the last day(expiry) is like a small non event day. Just look at the OP of this post. He had 23000 pe sell with 22800 pe buy. Even though nifty fell from 23500 to 23300 it was still quite far from his strike, he was still tightly hedged and he was not doing any intra day speculative fast buy sell. Yet his margins went up 80-100%.
SEBI should have first seen how much of a disparity there already exists in the spread margin charged in other markets vs India. It was already quite big. Now they have effectively doubled it, making it infinitely worse.
Just please if you can get this feedback out there to the SEBI officials.
Point out the huge disparity that already existed when considering hedged positions.
Point out how much worse it has got from the 2% rule. Did they intend it to be this bad. Did they consider these scenarios?
Can they exempt the quantities carried from the previous day or earlier days?(short term solution, can be done quickly)
Better yet, can they improve the hedged positions margins to be similar to other counties. This would require consideration of spreads as a unit and disallowing clients from breaking hedges. (harder and less probability of ever happening)
I would be surprised if they didn’t bring it up when these proposed changes were in draft stage, unless they didn’t bring it up because it’s in their interest to get that extra brokerage when clients square off the position at E-1.
From SEBI’s viewpoint, they might want to discourage sellers from holding until expiry, thereby reducing liquidity on 0 DTEs and make it even less attractive.
Suppose I’m holding short options for Midcap nifty of Monday 25th November. Will the extra ELM margin need to be brought in by Monday morning, or by Friday evening itself, so as not to get into negative margins?
Nothing is well thought out w.r.t. to regulations. They just sit at a tablet with a Himalayan water bottle by their sides, enjoying a grand buffett and chit-chatting up until the last 5 minutes. When the meeting’s about to end (which they totally forgot about), they hurriedly put in some regulations and neither of them has ever placed a single buy order on any stock.
Behold, we are Vishwaguru. The golden age is here. Rejoice.
Neither we’ll live, nor we’ll let others live.