If MTM calculation in short options does not require daily settlement in cash like in Futures then why it should always get adjusted in Available Cash?
Believe it only affects the Span + Exposure Margin and in case of hedged positions it is only the fixed loss based on strikes width and should not have any impact as long as hedged is not broken.
Then why can’t the MTM be adjusted in collateral margin and not in Cash.
This is very detrimental as once the available cash is negative further positions adjustments for current or new trades cannot be taken.
If this is a SEBI rule what good it does and should it not be taken up for further discussions in a already excessively governed environment.
Yeah, while considering the MTM, we will reduce it from the cash, but you can still use that cash if you have collateral. At the front end, it will be reduced from the cash, but at the backend, we will consider the collateral. We are also working on revamping the Funds page, which should make this easier to understand.
So are you saying even while it shows negative cash in Available Cash - I can still sell or buy options with the collateral not cash - bcos currently I don’t think it is possible.
How will I know what is the actual funds in Cash when that is being shown as negative
On top of it believe not able to initiate positions even with collateral margin when Available Cash is negative and that is the real issue.
Pls check internally how this works.
Unless the hedged short positions required MTM is not required to be addressed in Cash or it is only adjusted alongwith with the required Span + Exposure Margin with Collateral Margin this cannot be solved.
This is the biggest problem with using Zerodha. Users have been requesting a revamp of the Funds page for a long time, but they keep delaying it for one reason or another.
And does this mean we can take new positions as only collateral margin will be adjusted which then takes out the dependency to Cash completely atleast for hedged positions?
For fno, collateral can be used fully, we show negative cash because there is 50% rule for fno , means 50% should come from cash or cash collateral, if not for next day penalty will be levied on negative cash, even one can buy options using collateral and even in this case cash will go negative and on negative cash charge will be levied for next day.
But the issue is I have 50% Liquid bees (which is Cash component) & 50% in Collateral as Margins and some cash in broker account - But still cash goes Negative which should not be the case - Will this be addressed in your revamping?
Further for hedged positions the maximum loss as per strikes is only required to blocked which can still follow the 50% rule which is perfectly fine until hedge is broken. Will this also be addressed & followed after revamping?
Spread 25100 PE - 130/- & 25000 PE - 80/-
Maximum Loss - (100 - 50) * 65 - 3250/-
Now in that 50% is only required from Cash component which is 1625/- which only should be blocked until the hedge is broken no matter how much deep in the money the short position goes into.
No, this is not how it works, it remains the same way, this has nothing to do with broker or collateral, based on exchange requirements margins will be blocked. You can add the positions on basket to check margin required.
Then what is the benefit of hedged positions when short positions become deep ITM as per exchange requirements? Is it only wrt Span & Exposure margins?
And why hedged short positions MTM needs to adjusted with cash margin when the loss is fixed and why not use collateral margin for the same (even if more margin to be blocked which as per my understanding should not exceed the maximum loss which is currently exchange requirements)?
Right, it will be blocked with collateral first, only after all collateral is used then only it will be blocked from cash. Specifically in this case there won’t be any charges levied even if all collateral is used, even with stock collateral.
As per your above responses after the Funds page is revamped then we would see the below functionality
Span + Exposure Margin will be deducted 50% from Cash component & 50% from Collateral component - This cash component deduction can be from pledged securities which qualify (eg Liquid bees) and the remaining available margin of the cash(including liquid cash) & collateral components will be shown. So traders will be allowed to take positions if overall No Negative Cash component which might not be the case now due to exhausting cash component first due to various reasons
Once the hedged short position goes ITM then MTM margin blockages will be done first from Collateral margin as no 50% rule applies here and once it is exhausted Cash component will then be used. The advantage of this atleast as per point 1 Span+Exposure Margin shall not increase rapidly like MTM for a hedged position and so Negative Cash will be avoided allowing traders to take further positions wrt adjustments/new counter trades etc. Additional benefit no charges for all the Collateral margin. Believe this also is currently not functional in Zerodha.
Is the above understanding correct?
Now coming back to the issue wrt SEBI/Exchange requirements why does the exchange mandates margin blocking for short positions when it starts going ITM wrt MTM when it is a hedged position - What they want to achieve by this when for the complete trade the Span+Exposure Margin is already blocked?
I understand that the gain from long positions is not offset for short position MTM but atleast hedging strikes needs to be considered wherein there is no possibility of infinite loss unless the hedge is broken no matter how deep ITM the short positions can go. Really what is the point of blocking more & more margin wrt MTM when CMP crosses the hedged position strike - it is just ridiculous.
When SEBI says trade responsibly with Hedging if this simple benefit is not provided then what is the point - Do Brokers & Traders forums cannot take this up - And is there any issue to realise this requirement?
Even now users can take trade when cash is negative, this is just to let users know, provided excess collateral is there.
Currently it is like that only, if collateral is blocked for short option MTM and on that no additional charges will be levied.
Once funds page is revamped we will show the distinctions clearly, back end remain the same.
We block MTM only for that day, as margin also would have increased if position is moved ITM, for next day morning only additional margin is blocked and blocked MTM will be released at start of the day.
Not able to understand if the blocked MTM is released at the start of the day then if the short position is already in ITM then again it will be blocked in the day - but based on current option price might be little less or more based on volatility - Still if it is with collateral margin then atleast it shld be ok.
But still we are not sure when cash becomes negative bcos it just shooting in the dark if the order will go thru or rejected - bcos exact remaining margin is not known - Also it is an issue with buying options if we execute long first then short.
