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
dude… have a look at weekly index options
/
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.
Have you traded in options ?
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God …
Same thing can happen on other days as well …
I am out of this topic …
All the best for your trading career
Dear MAC,
Logic of Not Allowing the buying of options with Pledged stocks is for Buying the options every brokers will deduct the outflow of Total premium amount, meaning we need to pay the cash for buying the options.
Pledged margin doesnt mean this is actual cash, this is the loan provided by the broker based on your holding, once the pledged shares liquidated only then you will have the actual cash which is allowed for buying the options.
Also you can sell the options with the pledged margin as well
Hope this is clear
Thanks
Rakesh
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Hi,
Say, I have 50% collateral from Non Cash Mutual Funds and 50% from Cash equivalent Liquid Mutual Fubds
Can we use Collateral for option selling strategies which involves Buying options?
For example Iron Condor, Bull Call, Bear Call, Bull Put, Bear Put etc
Also incase I carry Options strategies overnight, how much interest will be charged and it is based on what amount?
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One can’t buy options using any kind of collateral.
No additional costs if you have enough collateral provided if it comes minimum 50% from cash or cash collateral and remaining from other collateral.
Thanks Siva
In F&O pay-in/payout is T+1, therefore there is no immediate payment to the seller. That is why we have MIS type trades. I have been working with other brokers for many years. This has never been an issue with anyone of them. I strongly feel that your regulatory team might have misunderstood the circular. I urge you to look into the provisions once more. Confusion could be because, option buying entails zero margins.
This is a suggestion, As a broker you could block 100% of option price in pledged margin against purchase to cover your risk. Hope you will convey this issue to some senior person for a practical policy on option buying in MIS.
Thank You
Option can become zero in one day on expiry days, other days can loose more than 90 percent. Imagine if option has gone zero on expiry day and pledged stock has fallen 20% percent plus? so this not practically possible, also wondering which broker allows option buying with pledged money, we don’t allow though but to know.
There are two parts to your answer.
Risk factor is negated by the fact that if you block 100% of pledged margin especially in liquid fund. Then even if it becomes zero, will not matter.
As far as I am concerned, I always pledge in Pure Liquid Funds.
The answer to other part is Emkay Global. Remember, all my pledged margins are always in liquid.
Probably you can develop a system where you can make an extra provision for liquid funds.
change your strategy to credit spreads - you can earn equal or better ROIs than just naked option buying. Plus you can use the collateral margin money.
Once you have shorts in the system, any longs you buy will be accommodated in the margin money (no cash is required in ledger)
End of day you will become a better trader, loose less and also earn passive income on the funds pledged.
Raise a ticket in zerodha on how to pledge shares or mutual funds and to use collateral !
Thanks for your wishes!
Option buying can loss 90% on any given day i. e Monday, Tuesday, Wednesday & Friday
& can loss 100% on Thursday
But remember option selling can also go up from your selling price on any given day at times even 10X or even more at times like freak trades
All this can happen but can be managed by “SL” By professional traders
The question was clear year back & even today
IF collateral margin can be used for option selling then why not for buying at least for MIS (except on Thursday)
If option buying premium for 1 lot is 10k (block entire 1.5 lakh similar to option selling margin Requirment for 1 lot. Don’t allow on Thursday for buying)
Anyways I got my solution with some other broker but the point many traders or layman even today feels they are cool by what they have read in books & blindly believe they are right without actually understanding the rules of the game, But remember the EDGE lies in understanding such rules.
Thanks
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Sir any non directional or hedge strategy as good win rate compared to directional strategy (naked buy or naked selling) completely agreed.
Consistent Returns - Agreed
Smooth Equity Curve - Agreed
But
ROI equal or greater - Disagreed
Passive Income Good to have but my question was purely for professional trader for living who can use optimal resources with decent Risk & Money Management.
option buying means paying premium, a major component of which is time, another being risk.
risk is controlled to a large extent (95%) by exchanges using VAR/ELM/additional margins on futures and option selling.
In option buying since the risk vs time factor ratios vary wildly and widely w.r.t volatility and time-to-expiry the VAR/ELM or any such statistical measures fall short (in option selling the margin collected is determined by these VAR/ELM which is proportional to circuit limits 5,10,20 % that we see)
Even on the option selling side, its agreed that the risk is non-zero that things can fail miserably. But that is only 5% compared to the 95% in option buying where time-value starts dominating.
option seller can default only if prices go beyond circuit limits for a while in the opposite direction.
option buyer, if doing it on margin, can default even if the market doesnt open for 3 days in a row and no trades happen.
so the time value cant be paid with leverage! it has to be real-time-money.
Good luck. You have clearly not understood
The gap between entire collateral margin which can be currently used for option selling and not allowed for buying will be filled soon once SEBI comes out with below circular for MIS orders also
Hope I really understood!