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 Zerodhaâs course of action in the above scenario?
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
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 isnât 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 isnât 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.
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.
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 wonât be available on near month stock fno contracts and next month and far month will be available with normal current margins.
I am carrying axis bank OTM short put option to the may month expiry and the total of span and exposure margin has crossed the total contact value required for physical settlement(which is ofcourse not going to happen for OTM). What is the policy really for margin requirement in this case
@nithin Suppose I m holding short Axis 200PE for may expiry. I think margin should not be blocked for more than 240000 as 1 lot of axis bank is of 1200 shares. But the total margin blocked for me is around 250000(cash +collateral)
It will block lower of double regular margins or 100% of contract value which is (1200*387 ltp) 4.67 lakhs. So, in this case normal margin is 1.25lakhs, so we blocked 2.5 lakhs.
Why it always show like this.
premium was 1rs when I had bought option with one lot(1375) for 340 CE,itâs in OTM now,how much funds I need to add or there is no need to add any funds since we paid full premium??
What happens if it becomes ITM ,can we square off without adding any funds.
Please guide us
To buy option there is no requirement of any margin, one need to pay full cash which is called premium, ie lotsize multiplied by LTP(last traded price).Hence calculator show margin required as 0 for buying options.
Also you look like you are new to option trading, I suggest to read varsity options module here before trading in options, remember options are very risky instruments.
Yes sir I am new to Options trading ,I read varsity modules also ,I will continue to learn this again and again,this physical settlement/Delivery thatâs where I am getting nervous/afraid.
Since I am new to this I am just using Option buy only if there is any other risk involved in this also please let me know sir.
I dont understand the logic of blocking margin on last trigger price . If this OTM becomes ITM then i need only 240000 to take the delivery of shares. So full contract value should not be calculated at strike price which is 200??? This is the amount I should have in my account. Also the normal margin when i took position was around 78 k
