Margin requirements for writing options and decreased profits

I understand the reasons behind SEBI cranking up the margin requirements but the flip side is returns on hedged strategies that include option writing are just going down and almost skewing the risk to reward ratio. Question is, even for hedged and covered strategies the margin requirement is ridiculous. Compared to the US markets where margin requirements are “logical”, how are we Indian traders who write options going to make any decent return on our capital and risk ?

I’ve almost reached a point where I am considering trading US F&O markets just for the margin requirements but also because those markets offer more opportunities for hedged strategies to generate decent returns.

Is anyone else feeling the heat of reduced returns due to margin requirements ? Isn’t it suicidal to hence consider strategies that rely on buying options ?

I’m looking forward to connecting with like minded people and brain-storm some sort of hedging strategies that can still generate attractive returns .


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If you decide on trading US markets from India your tax compliance costs will be very high.

In case you’re assuming that premium to margin percentage for a given option contract under similar conditions will go down, consider the following:

As cost of writing options goes up so will premiums. You should be able to check this with a couple of months of data here onward. My statement for the most part roots in anecdotal evidence (Tezi, mandi option premiums during the broker self-regulated badla market times were cheaper than the call, put premiums in the SEBI regulated markets now). However, cost of trade even after due consideration to increased taxes and regulation charges is lower because of the transparency and liquidity the system offers now. These regulatory hiccups are part and parcel of how Indian markets operate. Going forward however, as the past indicates, market efficiencies should go up even further.

It should take at-least about a month for you to get adequate data on the option premiums post the increased margin requirements. But hopefully you’ll find that the above hypothesis holds true and returns for option writing remain at a similar percentage level. Cheers.

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I cannot disagree more with each and every statement you made. It absolutely goes against the ethos of what equity markets are. Some of your statements are also mathematically incorrect, like pricing of options going up because margins went up. There is NO MATH equation that links option pricing to margin requirements.

I’m not sure how aware you are about how margins are calculated for risk defined strategies so I am going to share some of the stuff that is being discussed among option writers.

So basically if your defined risk is 2k, which is what it is for a covered call on BN then the max margin necessary should be 2k and some change - what is it right now ? 80k. Its fundamentally broken and none of what you have said has anything to do with the science and math of derivatives.


In US they block only 2k ? as against 1.5L in India ?
SEBI is mad or what ?
This is cheating by SEBI !

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Yes, exchanges in the States block only that much that is truly at risk and this is what it should be. There should be no debate on this , period. But as they say devil is in the details.

In India either the technology is not mature or we are just plain pain in the ass country for doing business. All brokers I’ve spoken to say that there is missing infrastructure on the exchange side that recognizes multiple legs together as one strategy and hence don’t have the ability to calculate max risk and police it.

In simple terms, if you put a covered call on Nifty in the following way

Write 10900 CE
Buy 11000 CE

Then whatever way you slice it the risk is not more than 100 rupees, why because the strikes are 100 points apart and in worst case the 10900 CE will at max expire 100 rupees more than 11000 CE. Hence the maximum defined risk is 100*75 = 7500. This is ALL the exchange should block. But the reality is they have no way of considering these 2 legs as a whole and see what is going on. So they charge both legs as naked trades when in reality they are not.

Serious players will find out ways to trade US markets by establishing companies in trade free zones in middle east or Mauritius/Seychelles and trade the more mature, more liquid and deeper markets.

SEBI has its work cut out, do what is right or risk crippling the Indian markets.


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Just look at their audacity !

Such frauds will increase now. Thanks to SEBI.


I wonder how long it will take to bust the account. These margins will blow account in friction of time.

That is not a fraud, for intraday margin requirements are low but for that you need to do a covered order or a bracket order. Anyway, that is a separate discussion

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Dabba trading came to my mind immediately :slight_smile:

yes, very high leverage bound by the compulsion of closing the orders same day will and does create exponential stress. Best to avoid unless you are very sure how to manage that high a risk

Haha - true that.

which broker doesn’t charge exposure margin on selling options intraday ?

i tried to find out but all margin calculator suck , so if anybody knows from experience please share.

Can indians trade derivatives fno in Europe or american markets ?

I think No.

Awaiting for the reply…

You can trade using MIS to get upto 2.5X leverage at Zerodha or BO/CO for upto 7X leverage(depending on your stoploss) for intraday option selling.

Answered here.

I couldn’t agree more . margin requirements are too high to make any reasonable trades in Bank Nifty monthly options on Nifty monthly options even weekly options have the same insanely high margin requirement.
My funds are around 1.2 lakh and I started selling banknifty strangles for the last 3 months.
right now my account is at 1.31 lakh I made a profit of around 11k and that is with close management of these strangles and with the added tension of not having any additional buying power in case the trade goes against me.
this is not the correct way to trade as I prefer to risk only two percentage of my capital trading like it is possible in the US markets. having too big a position in any one trade can wipe out your capital if you are not careful.
I have been lucky so far but I am seriously considering continuing this I hope the Indian markets mature fast and the infrastructure becomes more friendly to us retail traders.

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India is not following risk based margin system like developed countries like USA and all develop countries, even SEBI is failure to make better margin system for derivatives trader in india. In USA risk based margin system they are following , So the liquidity in option current and next and far month have enough liquidity , But in our country , for example in hedged option strategy my risk is only 2000 means i want to pay full margin of 160000 in nifty , what is the benefit of trader , SEBI want to implement the risk based margin system to our exchange to improve liquidity in all contract ,


SEBI want to do one favour for market participant , let them allow to trade USA market , we will trade derivatives in american and european market , because they are implement risk based margin system there , , in india how we can trade derivatives , its 1000% high ther is no ROI or ROC in indian derivatives market …

Guys all brilliant people are fly abroad like USA, Europe , no one here in goverment board so please digest