Yup, this should happen.
1 Like
@nithin @VenuMadhav @siva This expiry month onwards, all F&O stocks have come under physical settlement. As discussed in this thread, hoping that the additional margins during expiry week won’t be levied in a blanket manner on all short option positions. While it is fair to levy additional margins on short ITM or CTM options, bringing short OTM options under the requirement of additional margins would be the final nail in the coffin that would render option writing meaningless (higher margins, physical settlement etc have already done a huge damage). Hope these changes would be effective this expiry month onwards. Please confirm.
From this expiry we will be charging double the margins( 2 times of span+exposure) on only wednesday and thursday and not from monday. Will be applicable on OTM short also.
That means if normal margin to sell option is 1 lakh maximum it can go would be 2 lakh and that too only after Tuesday in expiry weak. Correct
Correct,only on wednesday and thursday this will be applied, same for futures also.
And What would be the margin required for buy options.
1 Like
If the long are ITM the same double margins( 2 times of span +exposure) are required to hold them on wednesday and thursday of last week.
100 %
Thanks Siva for the quick clarification. What happens in the following scenario?
- An OTM short is 20% away from the spot
- It is Wed of the expiry week, so 2X margin get applied, despite there being a very small probability of the underlying stock moving 20% in 2 days.
- Owing to the additional margin, the account goes into negative, requiring the trader to bring more funds / collateral or square off some positions.
- The trader is unable to bring the requisite funds / collateral, either fully or partly.
- The trader is unable to square-off the positions due to lack of liquidity at that particular strike (a very strong possibility, due to the 20% distance between the spot and the strike. The volumes on single stock options have anyways dwindled).
What would be Zerodha’s course of action in the above scenario?
1 Like
Adding to that will client be charged margin penalty if his account goes negative because of additional margin levied by Zerodha for the stock in case position is cannot be squared off by both client and RMS
1 Like
Even at 20% OTM strike, find a seller is not much problem since RMS will square off at any Price they get. Though if no buyers are there, it isn’t much of a problem, since you have shorted the option, you will start getting in trouble only if your option turns ITM. And I have never yet seen any ATM or near OTM options having no buyers or sellers. Your broker will square it then. There isn’t much risk here( unless there is a major Gap up/down opening)
To clarify, I am not referring to a scenario where the far-OTM short turns ITM or ATM. Rather, I am referring to a scenario where the far-OTM remains that way till expiry, but the broker has levied additional margins due to which the account has gone into negative. In addition, the trader is unable to square-off the positions due to lack of liquidity at the far strike.
Yes.
Yes.
We will try to close it, client might get slippage, if not able to close and expires OTM then there should not be any issue, if not it will goto physical delivery and all the obligations arising out of it will be on client.
No penalty for margin shortfall because of our additional margins.
Is extra margins applicable for index options as well?
Extra margin is required for stocks having physical delivery. Index options are cash settled and also they is no way you can physically deliver an index. So, No, extra margins on Index options
On last wednesday and thursday BO/CO won’t be available on near month stock fno contracts and next month and far month will be available with normal current margins.
Same for index f&o?
No physical settlement for index right, they will continue to be same as now.
1 Like