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between margins and cash is, that margins are trading limits, while cash is your actual cash balance which can be withdrawn.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.