Since the TER has been removed, Option prices can execute at any price between the lower and upper circuit of the particular strike price. If an sl-m order has been placed at 20 and ltp is 10, the slm will get trigerred if there is a freak trade at 100. Even if an sl-l is placed with a trigger at 20 and a limit at 25, the order will still get executed at a price below 25 which will still result in a loss because it is quite possible that the price will come down below 10 in a few seconds. Eventually it would have gone to zero if it was expiry and the person would have been in a profit.
The solution: if along with the sl price, we can enter the nifty price as well in the sl order by looking at only the delta of the particular strike, then one would know that if nifty does not trade above a particular price, then the option would not trade above a particular price and we could avoid loss due to slm or sl-l. Example: nifty spot is trading at 16650 and I have sold nifty 16750 strike at rs3. I have put a buy slm at 15. Now suppose the call delta for 16750 strike is 0.12, that means( ignoring other greeks) that for nifty 16750 strike to hit slm of 15, the nifty spot would need to reach approx 16700(ignoring gamma). Now if the nifty spot does not reach 16700, then even if the nifty 16750 strike reaches 15, the slm order should not get executed unless nifty trades above 16700.
So, in the order window, zerodha could calculate the delta of the option and calculate what value the spot would need to reach for a particular sl to be hit and the user could select whether he wants to have this contition on or off. This would be especially useful for far otm banknifty strikes. @nithin @siva .
Theoretically it looks good, but it is not possible, one should understand the limitations at every level. As a trader now one should avoid using slm, maybe keep higher difference between limit and trigger. As you mentioned if freak trade happens even that can be triggered at limit, seems no other option for now. Let us wait if NSE may come up with something in future.
Or you could support the no trading day, week, month so that margin comes back. Freak trades are done by using AI, last time I checked an average human can’t still beat an AI doing billions of calculations per second.
And Siva, you also informed once that its exchange only which doesn’t allows giving SL or GTT order for options basis the underlying( solely basis the underlying). Its hard to believe what’s the rational behind it. That could have been the only way for us to be in the game.
Simply put, institutions have reminded to us, the retail traders, option selling is not your you. I am too scared to sell options now as my single biggest tool( SL) has been snatched from me.