Option writing by pledging of shares

Hello,

I have some equity holdings and I wish to pledge it for intraday option writing. I have gone through the file which mentions collateral margin available after haircut. I have 2 questions :

  1. I have recently opened a zerodha account, but I have shares in my demat account of another broker. Is a transfer possible or do I have to square off, transfer funds and again buy and then pledge ?

  2. The collateral margin I recieve after haircut could be utilized for intraday option writing ? If my position goes in loss, does zerodha square off my holdings ? For example, if I have advanced enzymes share worth Rs. 2 Lakh, and after haircut of 40%, I write intraday options on 1.2Lakh. Now I have no cash in this account, and I face a loss, at what point will zerodha start selling my shares from the demat ?

  3. In simple words, what is the process of pledging to get collateral margin for intraday option writing ? Do I have to pledge-unpledge everyday ?

  4. Acc to some recent changes announced by sebi, is pledging going to stay or this too is going to go away like after aug21 ?

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You can transfer, no need to sq. off and buy again. please refer this link https://support.zerodha.com/category/your-zerodha-account/transfer-of-shares-and-conversion-of-shares/articles/how-do-i-transfer-shares-from-my-zerodha-account-to-another-zerodha-demat-account

The last I read about this wrt Zerodha s that, when your MTM losses cross 50% of your margin they will sq. off your position. And naturally at the end-of-day on expiry even if it did not cross 50% of margin,

No, you just pledge once and get margin as long as you want, unless you incur losses or un-pledge yourself. You just need to create a pledge request from Zerodha console and you’ll receive a notification from CDSL (usually the same day) then, go to CDSL link provided by emai;, and generate OTP to confirm your pledge. The whole process takes about 2-3 working days.

Yes pledging is going to stay.

You can transfer your shares to your Zerodha demat account, the process has been explained here.

Yes, you can use the collateral margin for Intraday Option writing.

When your position starts making loss, your margin requirement increases, if you do not have sufficient margins to hold your position, it will be squared-off. But sometimes even RMS will not be able to if there is high volatility or lack of liquidity, loss may exceed the margin and the account will result in debit. It’s responsibility of the client to take care of the position.

If you have no cash to cover you loss, your account will result in debit balance, if you don’t add funds, pledged shares to the extent of debit balance will be sold. Also there will be interest charged at 0.05% per day on debit balance.

Once you pledge the shares they will remain pledged until you unpledge them, you don’t have to pledge/unpledge every day. The process has been explained here.

No, Pledging is not going away.

Thanks for answering all the queries.

  1. Does pledging have any impact on bonus, dividend, split, quantity of shares holded etc, ?

  2. How much are the total pledging, unpledging costs ?

  3. Are margins higher on expiry day for intraday option writing ? If yes, by how much ?

Pledging has no effect on Corporate Actions, you will continue to get them even if your shares are pledged.

Cost for pledging is Rs. 30 + GST per scrip. No charges for Unpledging.

For Index Options, margins don’t increase during expiry. For Stock Options margins increase to twice of SPAN + Exposure margin on last Wednesday and Thursday of expiry.

Lets say I have 1000 shares of reliance at 100Rs. I pledge them worth 1lakh and after haircut get 80k as margin to take f&o positions.
What if the stock suddenly goes -20%. But I have an intraday position in the market. What will happen ? My position would be squared off or debit balance ?

The collateral margin is updated at the EOD, the margin you have received will be adjusted according to change in price and haircut of the security you have pledged.

So share moves higher, more margins and share moves lower, lower margins; that too on a daily basis, as simple as that ?

Yes, collateral value will change according to price and haircut values of the security.

For overnight hedged positions, margin typically is around 30k for one lot in Nifty.

Is it that 50% of this has to come in cash ? Rest 50% could be collateral, right ?

Yes, right.

Hello…
Respect to all of you present here… :pray:

And after going to the above awesome quarries and their solutions… I have a little quarry…

It will be great if any one answers this…

The margin which we get from the plged shares after haircut…and if we use that for taking position in f&o(option writing) and if the trade remains OTM at expiration… It’s mean i am profitable… Then what will happen to my pladge share… Will i get it at the same plaged value or at a value after haircut???

Your replies can make wonders. :pray::pray:
Regards
Gaurav

@ShubhS9

Until you unpledge the shares they remain pledged and you can keep using margin received to take other trades.

When you unpledge the shares, the Buy average remains the same as when you bought these shares before pledging, that doesn’t change.

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First of all thank you very much sir for your speedy reply… :pray: @ShubhS9

Sir i didn’t understand this​:sweat_smile:… Please can little elaborate this :pray:.

Sir If we keep the shares pledge and use the margin recieved to take trades …then their is no benifits for broker?.. Or is there any?

Did the broker charge any commissions for giving and allowing to keep the margin as long as the client wants…?
Because clients charged only in the time of pledging…

Sir another quarry:-

Let one take a trade (option writting) and is using the margin of the pledge shares… Now at the time of expiry it become slightly ITM and he faces a little loss…which can be covered easily by the margin value… Now the margin available to him is less right because some of it is used to cover the loss…

Regards… :pray::pray:

Your replies can make wonders :pray::pray:

@ShubhS9 @nithin

Other than the charges you pay while pledging securities, there are no fees charged for using collateral margin.

The losses you face while trading have to be settled with cash, you cannot use collateral margin to settle losses.

If you don’t have cash to cover losses, it will result in your account going in negative balance, on which you will be charged interest of 0.05% per day.

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@ShubhS9 Suppose I pledge a share X whose CMP is Rs 100 and got margin of Rs 85 after 15% haircut. Now let’s say after 1 month value of X increased to RS 200 (so do margin to 170) and I decided to unpledge it, how much margin/amount do I have to return? I mean do I have to return anything extra apart from the margin which I got?

The current collateral margin you have will be 170. When you unpledge the shares, same will be debited.

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Thanks. One more question suppose I have margin of 50k(sgb)+50k(normal stocks) from pledging and 50k cash. If I take fno position of 1L, which cash will be used first? cash equivalent (sgb) or real cash?

Collateral margin will be used first.

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