Newbie options shorting/writing questions (2019)

General
1

Hey guys, Happy Dussehra! :smile: If you’ve got some time, I’d very much appreciate it if you could answer these queries about shorting/selling CALL/PUT INDEX options.

  1. While taking an options selling position, whether it’s MIS/NRML, Span & exposure margin is taken. Is this amount returned in full once a position is either squared off before expiry or the option expires OTM?

  2. Are there any additional charges for either taking MIS/NRML positions or squaring them off? I just want to make sure there aren’t any additional charges that I need to keep in mind when I’m calculating my profit target.

  3. Suppose I shorted a call/put at a particular premium price… On the day of expiry, the premium price of the option is higher than the premium price at which I shorted the option, but the option is still OTM.

I don’t have to worry about the increased premium price do I, I’ll still get to keep the premium because the option will still expire due to being OTM, right?

  1. Whatever happens to ATM options on expiry? Do they not get exercised just like OTM options?

  2. I remember reading somewhere that when you sell an option, any loss is deducted from the premium you receive first. This has me confused the most.

Suppose I sold an option and received 30,000 in premium, the market went against me and the premium for that option is now 50,000.

If I squared off the position before expiry, my profit would be 0 and my total loss would be 20,000 since I had to purchase the option at a higher premium, right?

  1. MIS margins are lower than NRML margins, but since all online calculators only show NRML margins, how to calculate MIS margins for options selling positions?

Sorry for such a long post, but I’m hoping the answer to these would help not only me but many others who are curious about how options selling works…

Thanks! :grin:

2

  1. Yup!

  2. Not usually, but if the volatility rises significantly after taking position or if a major event is coming up, then there can be a reasonable increase in the margin requirement as well.

  3. As long as it expires OTM, you’ll retain the full premium.

  4. Not entirely sure about this one, so maybe someone else can answer. Personally, I square it off if it’s ATM.

  5. Yup, loss would be -20k.

  6. I remember there was being a PDF file or something sometime back when I’d googled the same thing. For MIS, Nifty option selling is around 28k.

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3

Thanks for the quick reply! :smile: Hope someone can answer the ATM and MIS margin query. As margins can change, it would be helpful to know how to calculate how much I’ll be required to have in my account based on the position size I’m taking.

Thanks again :grin:

4

Btw, while you’re here, the spot price of Nifty bank is 27,767.55, can you please tell me why the 27,900 PE is showing as ATM and 27,800 PE is showing as OTM?

Shouldn’t 27,900 be ITM and 27,800 ATM?

What am I missing? :grimacing:

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5

App fail.

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6

Thought so… Just to confirm, I went to the Nifty options chain and did the same thing.

Spot price of Nifty is 11,126.40, so 11,200 PUT Option should be ITM and 11,150 PUT Option should be ATM.

Moneyness is reflecting correctly here…

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7

Day closing something like this happens. It is matter when mkt is open.

8

To calculate MIS margins for options check out Zerodha’s BO, CO margin calculator. Keep in mind even on Expiry day you will have to close your BO, CO position before 3:20pm, irrespective of where your option is.

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