Nifty deep in the money option squared off by broker

F&O
1

I had a credit spread of
26000 28 Nov Put SHORT and
25500 28 Nov Put LONG.

This trade had a max loss of around 4800 rs, but my broker squared this position off and because these options were deep in the money, and didn’t got fair prices to square it off, I had to bear additional 7000 rs loss.

I had some 1,20,000 rs as collateral and around 20,000 rs as cash. But still the broker squared it off. Even though these options are cash settled, why can’t just brokers run such positions?

I just want to know why brokers are not aware of the limited risk and limited profit strategies? Why can’t they just ask clients first and then square off such positions? I am sure I’m not the first to experience this but still…

2

Interesting… why would they square off ? @Jason_Castelino any idea ?

3

Never understood the basis for closing positions.

4

@ShubhS9 @nithin

5

Curious, which broker? :thinking:

If the underlying is a stock, then it’s expected because ITM/CTM longs (even though it’s part of a spread) now require much higher margins starting E-4 days:

This is in addition to the margin required for the short leg.
It doesn’t make much sense but those are the rules made up by the peeps at SEBI :person_shrugging:. The justification was that the client could potentially square off one of the spread legs and increase risk/margin. A more friendly and elegant solution would’ve been to just warn the client if they did that and to check if they had the margin to take on a naked position.

I’m sure this is exactly what happens at restaurants where the chef doesn’t taste their food and has an inflated opinion of their skills :joy_cat:

6

I hope it is not us . :grimacing:

The way @Parth_M has explained. Ideally, nothing should have been squared off.

2 Likes
7

It was Finvasia, and when I asked them to clarify the reason, they requested me to read the RMS policy, which I am pasting below, I have mailed them about it because it seems bit odd, and all of you also think that this shouldn’t happen, because it is so obvious that client won’t square off one position and let the other run.

All I wanted was a phone call, and I could have added required margin.

4. Policy for physical settlement of stock futures and options:

As stated in this SEBI circular, starting from July 2018 expiry, F&O positions are being settled moved from cash settlement mode to compulsory physical delivery settlement in a phased manner. Starting from October 2019 expiry, all stock F&O contracts will be compulsorily physically settled. If you hold a position in any Stock F&O contract, at expiry, you will be required to give/take delivery of stocks.

The deliverable quantity is computed as under:

Unexpired Futures
Long futures shall result in a buy (security receivable) position
Short futures shall result in a sell (security deliverable) position

In-the-money call options
Long call exercised shall result in a buy (security receivable) position
Short call assigned shall result in a sell (security deliverable) position

In-the-money put options
Long put exercised shall result in a sell (security deliverable) position
Short put assigned shall result in a buy (security receivable) position

The quantity to be delivered/received shall be equivalent to the market lot * the number of contracts that result in a delivery settlement.

Equity Futures & Options trading shall be allowed to Buy & Sell (NRML, MIS, CO, BO) till Wednesday EOD .On Thursday fresh Buying and Selling of current month Options contracts shall be blocked for trading in all order types (NRML, MIS, CO, BO). Only square off mode shall be allowed.Current month Future contracts shall be allowed to trade in MIS, CO, BO only.NRML Order Type: Current month Futures and Options contracts shall be in square off mode in NRML order type. Open positions can be closed only.In case you do not have 100% full margin for delivery, all current month NRML order type positions shall be auto squared off at 2 PM on expiry day. We will not square off if complete delivery margin is available i.e lotsize*price.Square OFF Timing for MIS, CO, BO Orders: Current month Future contracts shall be squared off at the usual time of 3.25 PM

The Exchange stipulated margins (Var + ELM) are levied from expiry minus 4 days for long ITM options in the following manner:

Day Margins applicable
E-4 Day (Friday EOD) 20% of VAR+ELM
E-3 Day (Monday EOD) 40% of VAR+ELM
E-2 Day (Tuesday EOD) 60% of VAR+ELM
E-1 Day (Wednesday EOD) 80% of VAR+ELM

Client can sqoff his positions till Thursday by maintaining the margins by 2PM failing which positions will be sqoff by RMS team.

1 Like
8

No it wasn’t Zerodha, it was Finvasia.

9

that shouldn’t have happened for index options with all leg also same expiry.

maybe your broker took counter position and pocketed your loss as their profit.

They have no reason to square off the position you shared. stay away from such scammy brokers.

2 Likes
10

Isn’t incidents like this prevalent only with unregulated brokers offering OTC products like CFDs? Why would they risk their entire business to pocket a few thousand in change? Seems unlikely to me :pensive:

11

with enough client base this can generate huge amount. we have seen legit businesses turned out to be scammy in this country.

12

Main question is what can I do about it now? Is there any way they will refund the loss or will I have to just move on? I know the amount is not huge but still it shouldn’t happen.

13

I had same position in previous few months also, I will have to transfer my fund to Zerodha again!
Tried to save some money from zero brokerage but ultimately I had to pay it.

14

If you had similar trades in the past, perhaps you could show them that and reason the recent behavior is incorrect? Maybe point out the response from Nithin showing how their competition stacks up and write a letter to their management if support is not helpful.

15

I believe you are aware that on expiry day there is increase in margin for short positions by 2%, ie around 12k for each nifty lot from last two weeks, can check this.