Its a sad fact that regulators in India only come up with dumb , nonsense restriction in order to prevent retail traders from thriving in a proper way. Thats what they have been always doing. Making life of a retail trader miserable in every way possible.
Any proper way retailer find way to make a income in the market the regulators will immediately come up with all nonsense made up stories that doesn’t even apply to most retailers and will put a ban on something or the other. Its a depressing scenario actually. Every aspect of markets they have a ban or some restriction for retailers.
When you buy Options, you are actually paying cash and this cash is credited to the writer of the option.
For eg: When you buy Reliance options worth Rs.15,000, it results in a cash outflow of 15,000 which is credited to the writer of the option.
However when you trade Futures, only margins are blocked. So if you sell one lot of Nifty, the Exchange levies margin on your account and similar margins are levied on the buyer’s account also. There is no ‘cash outflow’ to the trader.
When you pledge your stocks with a broker who inturn pledged it with the Clearing Corporation, you get margins and not ‘cash’. So you cannot buy Options because as mentioned earlier you’d have to pay cash to the writer of the option. Since the broker only gives you margins, you can utilize such margins only to take Futures/Short option position. If a broker allows you to buy options from collateral margins (even intraday), he is funding your purchase.
Note: Difference between margins and cash is, that margins are trading limits, while cash is your actual cash balance which can be withdrawn.
Assume your trading limits are set as Rs.4,15,000/- , out of this your cash component can be only Rs.1,15,000/- The remaining Rs.3,00,000/- could be Collateral margins. You could buy options only for Rs.1,15,000.
So Futures and options writing are not actually real cash transaction (but margin transaction) & Option buying is only real cash transaction (because real cash required) but entire F&O segment is considered as Non speculative as per taxation, it does not discriminate option buying as something else.
& after your explanation I feel - futures and options writing should be considered as speculative transactions atleast for taxation.
Do Margin means - Money but without cash?
(so pledged share margin is a Money without real cash for buying)
A real asset is pledged against unreal money (margin) - As this money is not allowed to buy.
Money & Cash have two different meaning?
When it’s about intraday then why not to hold margin money for buying and if by any reason client wants to convert this to CNC then surely ask for entire Premium amount as Cash or just square off the position as per cut off.
After square off any deficit EOD MTM then collect from client similar to futures and option writing & charge interest of 0.05% per day if unable to collect MTM deficit?
One main thing with options is premium can become zero in one day, suppose you have 1 lakh worth stock, after haircut you got 90k as collateral. Imagine if you bought options on expiry day worth of 90k, it can easily become zero, and at same time if pledged stock has fallen 20%, the risk of client losing more money than what he pledged is immense, this can result in major defaults and can result in systemic risk.
You have witnessed this many times in last one month. Yes, this is not often but most optimistically let’s take it can happen once in 100 days, point is not to be screwed that one day because it can result in total damage to every participant.
Bro if you are this much concerned about collateral margin for doing things like buy options just take loan against shares from NBFC , pay interest and do whatever you want, spend it , save it ,withdraw it.
Loan against shares is similar to pledging of shares
Difference is pledging is free
Taking loan against shares requires paying interest
Every route is legal
Traditional brokers provides every route
But little high brokerage
Say someone buy a Bank nifty call for 1L , BN goes down by 200 points , your call will be 50k .
It can goto 10k as well if you had bought far OTMs.
This is not a once in a month thing , these things happens at least once in a week.