Pledging of shares in call option shorting

If i have same amount of shares in holding equal to lot size of stock. For example- i have 3000 shares of SBI in holding and if i like to short a call option, is there any way to block/pledge 3000 shares of SBI shares with broker so that i do not have to pay additional span and exposure margin till the end of expiry?

If LTP goes above my call option strike price, i would go ahead and tender the same share for delivery…

Please guide…

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Yes, you can pledge your shares and use the collateral you receive to trade Options. The process of pledging is explained here.

For this you will need shares in your Demat account (pledged shares aren’t in your demat), if you don’t have shares in your demat account it will result in short delivery and penalties will be charged accordingly.

I understand the process of pledging… let me rephrase my question- Assume i pledged all the shares that i had of SBI (3000) shares… its equal to one lot size of SBI

Question -1: Do i still need to maintain margin - i…e exposure and Span margin in case i am shorting call option say SBI 200 CE… say current SBI equity is at 188 rs…

Question-2 : Assume equity price goes above 200… as i have pledged equal amount of share, the same share can be used for delivery at 200 rupees… I understand that i may have to pay charges of pledging and unpledging of shares with broker…

Yes, you will have to maintain SPAN + Exposure margin as usual. Just that collateral you have received from pledging of SBI shares can be used to fund Shorting of Call.

You can use those shares for Delivery but as I mentioned above, for Delivery you need to have shares in your Demat account on the day of expiry (pledged shares aren’t in your Demat account), failing to do so will result in short delivery.

To avoid short delivery you will have to unpledge shares at least two days before expiry so they will be in your Demat account on the day of expiry.

After the new rule imposed by SEBI, is it still necessary to unpledge the shares or if the price goes above 200 the shares would be automatically sold?

You will have to unpledge the shares before selling.

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I have exactly same question like yours.
I see the answer is not satisfactory.
Did you finally found out a detailed answer to this question?

Even I have FULL LOT of many shares and I wish to sell covered Calls against those shares. If on expiry, the share price increases than the selected strike price of my Call option, I just want to give away the shares and settle with physical delivery.

Why do we still need to maintain margin for selling COVERED CALL even if we have shares in our demat (equivalent to lot size) ?
Can zerodha develop a mechanism where we can just block our shares against the CALL OPTION we sell?

Pledging is different because then the shares are not in our demat and therefore we need to unpledge the shares on expiry day resulting in additional margin requirements.

Therefore, it’s best if zerodha can just allow us to sell covered call option against the shares we hold in our demat account and no additional margins are required.

Does anyone has opinion about this?

I agree with Kaps, the above answers still does not fully answer the situation.

We pledge the shares to get margin required for selling. That is fine.
But 2 days before if I have to Unpledge (to make them available for delivery)
then how do I maintain the margin required for the sell position ?

Can’t we some how pledge the shares directly against the sell position, why should I need additional margin money to sell the call option even when I own the equivalent shares ?

@Kaps This is just a suggestion, don’t take this as a advice. Always sell covered call on more than 1 stock to diversify your portfolio and reduce the risk. Now it is unlikely that there would be more than 1 stocks getting called for delivery in the same month. So you could still unpledge the stocks but keep the position as the margin from the pledge of other stocks can be used to keep your covered call.

This is something even I was looking for. I am holding entire lot of few companies in cash I just want to sell above ce. Why should I have margin to sell ce and maintain span.

Zerodha can may be lock my shares not available for trading nd sell if they want. Also while selling option there is no real transaction of cash, it’s only margin is blocked.

@nithin do you guys think you can look into it.

That’s my point.

If we have shares equal to or more than the lot size of Options contract which we are trying to sell, Zerodha should be able to just block our shares until, either we square off the Call option ourselves or the contract is settled through physical delivery.
There should be no need to maintain additional margins.

@nithin could you please help? we value your time & don’t want you to read entire thread :slight_smile:

The ask here is, If I have equal or more shares thn the lot size, I should be allowed to sell its call without having margin & have to maintain SPAN.

if its going expiring ITM, I prefer to do delivery & if its expiring OTM, it will be anyways worthless.

I haven’t read the full thread. But you can pledge the shares and use the margin to short. If there is any MTM loss, that has to be adjusted in cash. Just shares being in Demat can’t be considered as margin as per regulations. It has to be pledged.

@VenuMadhav on the last day if options are ITM, can we invoke the pledge?

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One needs to unpledge 2 days before the day you want it unpledged? Why can’t it be same day ?

I have the same question and i think the following may be the answer : not sure
This is my first ever post/reply in Trading Q&A- please forgive if I am wrong.

Scenario : Our covered call in ITM or Deep ITM. So Wed onwards of expiry week the Margin requirement is twice of SPAN + Exposure. We have managed this with 50% collateral and 50% cash margin.

We cannot unpledge the shares till expiry day 3:40 as this will mandate to replace 50% collateral margin with cash.

Our Position ends ITM and we are obligated to give delivery, So we unpledge our shares on expiray day at 3:45, the unpledged shares will be available on Monday ( Working Day after Expiry ).

Based on my experience of earlier covered calls, the shares do not get debited until Tuesday, sometimes Wednesday also (they were shown in my Holding).

@ShubhS9 is this flow correct ? @nithin

For Futures and Short Option position the margin requirement now increases only on expiry day, to 40% of the contract value or SPAN + Exposure margin, whichever is higher. You can check out this post for more information: Relaxation in Physical Delivery Policy - Margins collected

If you want to give delivery of shares, it is best to unpledge them before expiry day so avoid risks of short delivery.

I’ve pledged my mutual funds (which is 1.5-2X of my stock holdings) to get margin to sell covered calls. I try not to pledge stocks against which I sell covered calls.

i assume there is interest charged on the margin ? i have account with hdfcsec

With respect to the thread as i understand the reason why zerodha etc do not allow direct hold on the equity which we are selling the call option on is because everything is settled in cash, whether we have the underlying security doesnt even matter. For the brokerage to hold the security and then sell it if the strike price is exceeded probably adds extra level of complexity specialy since the settelement for the CE would be on day of expiry, but the sale of security would take t+2 days.

someone here mentioned taking a pledge on other shares than the one which we are selling covered call on. That makes sence to me. I am intending to do the same. Basically ensuring we have the entire lot ready to sell, if it comes to that, is our responbility