Please explain my loss in the case of the Netted-off option position

F&O
1

Please explain my loss in the case of the Netted-off option position

Example:
Short REC 235 CE at premium 3.2 and 1 lot (1 lot = 8000)
Buy REC 240 CE at a premium of 6.5 and 1 lot (8000)

Suppose REC closes at 245 Rs on expiry and I do not close the above 2 positions. As these are ITM positions, it will be netted-off and I won’t have to take the physical settlement. How much will be the loss in this case? Please include the brokerage and STT charges.

@ShubhS9

2

Short REC 235 CE at premium 3.2 and 1 lot (1 lot = 8000)
Buy REC 240 CE at a premium of 6.5 and 1 lot (8000)

First of all, this is OTM( out of the money) so the premium will be zero on the expiry.

So, premium received= 25600
Premium paid = 52000
Loss = 26400

As the contract expired worthless so there won’t be any charges. Charges will be applicable when the positions were created.

3

How it is OTM?? REC Expiry price is 245

4

For all netted-off positions (spread contracts, iron condor, etc.), the brokerage will be charged at 0.1% of the physically settled value.

What is Zerodha’s policy on the physical settlement of equity derivatives on expiry?

5

As u have net off positions, you would not be obliged to take/give any physical delivery.

Loss on 235 CE sell will be 6.8 rs and loss on 240 CE will be 1.5 rs.

So net loss will be 8.3 rs + charges

You can check our support article on charges:

6

My bad, it was a CE position, I read PE

7

@Meher_Smaran @nithin - I want 2 points to be clarified on physical settlement margins.

I see the maximum margin required on expiry day in case of futures or Option writing is Minimum of 1.5 times NRML or 50% of Contract value , Since its minimum out of 2 so in most cases its 1.5 times NRML Margin only which would be 20 to 30 % of contract value.(Ex Reliance) . But in case of option buying margin on expiry day is 50 % on contract value.

Question 1 - why can’t option buying margins be same as option selling on expiry day, say minimum of 1.5 times NRML margin or 50% of contract value. in this way option buying would be at par with option selling on expiry day

Question 2 - primary problem i see is in case of netting of position which are deep in the money with no liquidity. where the primary goal would be to let them expiry and netted off with no delivery obligation. So in netted off positions why can’t the margin required on expiry day be maximum of margin required for either of the legs of netted position , so that if the trader wants to exit one leg he can do and any how you would have blocked the margin for other leg. why to collect margin for both legs.

I understand the issues happened in the past on physical delivery. But i don’t see logic in colecting such high margins in netted off positions. let me take an example.

You have position say 2900 CE buy and 2950 CE sell. on expiry day if stock closes below are above 2900 or 2950 no issue it would be netted off or expire worthless. if it closes in between 2900 CE & 2950 CE it would be single leg where we would have obligation to take delivery and you have collected Margin for one leg. and moreover it is ATM so exist will also be easy from liquidity purspective

I would request you to think on Deep in the money netted postions( for naked positions it night be ok). if such high margins are put on Deep netted positions , its like discouraging people making profitable trades. when the trader placed the order it would be ATM or OTM . since the stock went in his favor but due to no liguidity he would have to take lot of loss selling at unfavourable prices.

Let me know if i’m wrong in some assumptions , happy to understand…