Hi,
Did Zerodha just allow option buying using pledged margin? I didn’t see any notification regarding the same. What happens to the existing buy positions. The margin hasn’t changed for those.
Thanks,
Praveen Kumar
Yes.
It will not change, also first cash will be used for option buys and once there is no free cash then only collateral is used for option buying.
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@siva The change in Policy is by Clearing corporations? So it applies to all stock brokers?
Also, why this change ?
No new changes from regulators.
We started allowing because of user feedback, getting many requests asking to allow and also most big brokers allow this.
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suppose our collateral margin is 94%, say we pledged NIFTYBEES
For intraday purpose only, we can use this margin without facing any interest charges?
for option buying?
with example,
if we pledged 10 lac worth of NIFTYBEES
we can trade intraday with 9 lac 40 thousand Rs without facing any charges?
this does not involve any overnight position holding, purely intraday
As far as i know, For option buying Full premium amount should be available in Cash. Is this rule changed? Can we buy options ( Intraday or 2-3 days) using Pledged Margin?
@Zerodha Pls clarify
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You can buy.
Might be an unpopular opinion but isn’t this against zerodha’s philosophy of helping people do better with their money?
Majority of options traders anyway lose money, but if you do the same analysis on options buyers, that number I’d assume would be even higher.
However buying through cash till now meant at least the portfolios of such traders were safe. One may argue that people are borrowing money even today to trade, but this feels like unlocking a whole new platform to gamble your life savings.
PS: I’m an options seller so this buy side fillip will only improve the premiums I collect, but this move seems very unlike zerodha. Interesting timing as well.
PPS: The nudge on placing a buy order looks more like zerodha trying to cleanse their guilty conscience!
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Option selling has higher risk compared to option buying.
In option buying, only the premium paid is at risk and loss is limited.
In case of option selling, the loss can amount to multiple times the fund used to enter the trade. There is absolutely no limit to loss when option selling.
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Zerodha Nudge
Nudge that i get in BUY order window recently.
You have collateral margin available in your account that may be used for this order if available cash is insufficient. If your option position loses money, your holdings may be sold off to make good the debit. Please analyse the risks carefully before using it.
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@siva So, like in option selling, you need a minimum 50% of cash or cash equivalents. So, is there a similar restriction in option buying too, that you need 50% margin as cash or cash equivalents, and the rest can come from equity collaterals?
Nothing like that but if you use collateral to buy options then your account will go into negative balance next day and till that is made good you can’t use your balance collateral to take new trades.
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@siva
Please explain in an understandable manner with an example. How can it go into negative balance next day??? I think it is only in case of loss. Is it???
Blockquote
If your option position loses money, your holdings may be sold off to make good the debit.
In nudge. It is also confusing. Suppose I have 20 lakhs as collateral and 1 lakh in cash. suppose I incurred a loss of 20,000/-. What is the negative balance that you are referring to??? Please clarify. Does this apply for intraday buying ??? Lot of people seem to have doubts regarding using collateral for buying. It is not clearly stated and i could not find any article regarding this in Zerodha support page too…
Important: Do you charge interest on the cash margin shortage, if any ???
Looking for clarity on the same. I have positional trades now I have a negative cash margin with 11L pending collateral margin. Should I get the cash balance back to Zero.
If yes what’s the use of using Collateral margin?
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Zerodha is hiding some facts. I smell something fishy.
Yeah, adding one article exclusively for this, give it couple of hours.
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need clarification on this. Right now negative cash balance incurs an interest penalty. But this nudge “If your option position loses money, your holdings may be sold off to make good the debit” means, if I have negative cash balance at EOD, my pledged collateral can be sold off to bring the balance to zero ? Or will that happen only at the option expiry?
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This totally depends on how much option looses money, for example if you have additional collateral no action is taken but entire collateral is used for option buying and option starts falling more than 80%, then only we start closing position or pledged holding at discretion of our RMS.
Can you please provide a detailed article with various scenarios & examples?
It is getting very confusing
or if the article is already published, please do let us know the link!
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