nifty option bought worth 10k in NRML and sold in NRML intraday , after squaring it if i buy it again for 10k will peak margin will be imposed. (Taking position in NRML instead of MIS in intraday) Even done in " intraday (NRML) " , peak margin will be imposed ?.. And if i do all the mentioned trade in MIS then there is no penalty ? So better to go for MIS instead of NRML if trading for intraday …
For buying options you pay entire premium upfront (price * lot size). There won’t be any penalty, you can use any order type for trading.
As we all know that from 1st Sep the intraday leverage of 75% will be a thing of the past.
I had a question on how things will be post 1st Sep.
Currently when we sell options with MIS, we do not get the benefit of the entire premium received (i.e. restricted to approx 20 or 25% of the sale
premium).
Post 1st Sep, once the intraday margin is gone, If I sell option using MIS (because I also have far OTM hedges) would I be getting 100% of the margin benefit or will the restriction of 25% still stay post 1st Sep.
If the restriction still stay it would mean the selling in NRML would need a lower margin as compared to MIS purely because in NRML you would provide the entire sale premium as margin reduction.
Or would the MIS and NRML margin would be the same.
I know there is a possibility that you would have not finalized the structure in totality yet, but even you current thought or view would help me a lot to better predict what my margin requirements would be post Sep and help people be better prepared for the transition post 1st Sep.
Thanks.
We should give full credit post sep1 as same margins are asked for MIS and NRML.
Dear Sir, lot I am really confused with all the news going around. I trade intraday on equity. Some say after 1st September we will have leverage of 5 X but some say there will not be any leverage at all. Can someone help me understand?
From September 1st, the maximum intraday leverage provided in equity segment will be capped at 5x. But there will be no intraday leverage in F&O segment, the margin requirements will be same as NRML/overnight positions.
Hey, Thanks for the quick response. I am glad I am connected with Zerodha. You guys are approachable and available round the clock. I get the same premium experience even when I talk to some one from Streak. Good Job Team. Keep up the good work.
In what scenario will peak margin be applicable for following:
Fresh Trade taken on Day 1 - Sold 1 Call Option of 16500 - No other trades exist as of date - Full margin per whatever Zerodha RMS requires is deducted from account.
- In this case, lets assume margin is 1 Lakh and premium received is 5000 - will entire 1 Lakh is blocked or 95K is blocked by Zerodha
- Intraday - market moves to 16600 - MTM Loss - If sufficient margin to cover MTM is not there - will zerodha auto square off or keep it running
If answer to 2 is auto square off - then under what scenario can one incur peak margin penalty.
- Entire 1lks is blocked on T day. The Rs 5k is credited by exchange only on T+1 day.
- If there is MTM loss and there is sufficient margin to cover, positions won’t’ be squared off by our risk management.
If you have sufficient margins when entering positions, there is going to be no peak margin penalty issues. MTM losses won’t lead to peak margin penalty. Peak margin penalty today is mostly happening when customers exit a hedged position that required a lesser margin and don’t have sufficient to hold the naked leg, but exit the long leg first.
Assume in the above case, the customer has only 20k in the account (post taking the trade). If the customer first exits the buy Nifty option position, the margin required will shoot up to 1.31lks. This will mean a peak margin penalty for the customer. Our RMS team will anyways square off this position since there isn’t sufficient margin before end of day, so there won’t be any end of day margin penalty.
If a trader initiates a naked short 16500 CE on Nifty and has just 5000 Rs. above the span and exposure margin required at the time of initiating the trade and if Nifty goes up by 5%, it will result in negative margin and might result in peak margin penalty.
Editing this. Yeah, you are right.
Does this apply to stocks cash in intraday as well ?
As an extreme case, say i use up almost all of my balance and have slight room left, say 3% and then all of my positions start approaching my exit order but have not triggered yet. If my overall loss breaches 3% without stops getting hit, can we get peak margin penalty ?
If yes, then it might be better to offer say 4.8x instead of 5x as max leverage to give some room automatically.
If you had margin when taking the position, a loss won’t lead to peak margin penalty.
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I thought MTM loss settlement applied to only Futures. For short option positions, technically, it is a realized loss from ledger only when closing the position.
For short call options, I experienced peak margin penalty in month of June [Jun 14th] for Adani when the price shot up from 1300 to 1500 intraday. I had lot of open CE positions and unused balance might have reached negative values for a small duration. I did not have any Futures/cash positions.
I exited few CE positions around 3:15 PM which freed up some of the margin and ended with positive margin at 3:30 PM.
@siva , @nithin : I assume that span + exposure margin can increase intraday if Nifty or any stock goes up by 5% and a trader has a naked short CE on it. Correct me if I am wrong.
I daily observe changes intraday in unused funds based on the underlying stock’s movement moves greater than 3% in which I have open short option positions.
Thanks. Follow up questions
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What is EOD Margin Penalty - how is it different than Peak Margin. My understanding is Clearinghouse is taking 4 random snapshots during the day - and will take the highest margin out of these 4 - and in case there is shortfall - penalty is levied. and this information is sent to broker at EOD - between 4-6 PM from NSE. What is EOD MArgin Penalty ?
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In your EOD Margin Statement - the funds are shown under NSE EQ - and under the FNO - Many times it is even negative under Margin available till T day while NSE EQ shows funds. -Net sum at bottom is correct. This is confusing to trader. Right now only trading in FNO so looking at total which is positive number. But due to this it shows as shortfall - see the negative no under due from client. See attached Image - The amount it shows for FNO is smaller than available funds - hence that leads to -ve no in Due from Client.
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In hedged positions, if exiting the Future in scenario listed in original post - as first exit - and post that exiting the CE which was hedging - any scenarios in which Peak margin penalty or EOD Margin Penalty can be incurred.
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You said MTM Losses won’t lead to Peak Margin Penalty - What if market moves up 100 points - and the MTM loss is greated than the margin available - will auto squareoff happens in hedge position. Why NSE will not consider Peak Penalty in this case - as the Margin with Broker will fall below margin required ?
Ah sorry my bad, I missed that this was short option position. Editing my earlier answer. Yes, if margin requirement goes up, which in case of short options can happen if market moves against you, there can be peak margin penalty.
EOD margin penalty is if there is no sufficient margin at the end of the day. At Zerodha there can’t really be EOD margin penalty for equity since we don’t allow customers to hold positions overnight without either full cash or stock. The only time it can potentially apply is if a stock hit circuit and MIS positions couldn’t be squared off. In FO, it can happen when MTM losses aren’t made good off by EOD or if margin goes up intraday and the account is short by at EOD.
@VenuMadhav can you check and see if we can do something.
[quote=“rms, post:4> 10, topic:96246”]
In hedged positions, if exiting the Future in scenario listed in original post - as first exit - and post that exiting the CE which was hedging - any scenarios in which Peak margin penalty or EOD Margin Penalty can be incurred.
[/quote]If at any point either intraday or EOD, if you exit the long leg of the hedged position and margin goes up, and you don’t have sufficient, then there will be a penalty. Both peak margin and EOD if you end up holding a position overnight.
Our systems won’t allow you to hold on a position if MTM losses exceed margin. Typically we square off positions if MTM loss exceeds 50% of margin available. But even if it did, there won’t be peak margin penalty as you would have had the margin to enter the position. There could be an end of day penalty if you somehow ended up holding position overnight.
The Exchange format for margin statement requires us to show segment wise balance and hence the confusion. We’ll seek permission from them whether cumulative margin available in the client’s account can be shown, instead of segmentwise breakup and make amends if we get a go ahead from them.
Hi Venu,
If exchange mandates segment wise - then I have traded only in Futures and do no own DP Account. Shouldn’t the entire available balance be shown against FNO instead of Equity.
Secondly - why not only small portion of amount - is shown against Futures - which results in negative balance due to hgher amount required in row against FNO by exchange
Hi article says first exit the high risk(margin) leg of a portfolio of F&O positions… it gives example of 1 future and 1 Put option…
suppose if one has a strangle position written ( ie sold 1 CE lot and 1 PE PUT lot ) then which would be considered as high risk leg which we should exit first … kindly advice