If I have sold a 1900 put option of bajaj finance @ RS.78.9 premium with a view of taking delivery of stock if it falls below it gets exercised on expiry otherwise keep the premium. For this position, Zerodha blocked a margin of around RS.147260. now, this morning the position is against me and the position tab in kites showing me a loss of around Rs.6000, therefore, the margin available in the account reduced by almost the same amount I guess it is due to RMS policy.
I would like to know few things assuming the bajaj finance spot reaches 1800 on expiry, therefore, making options in the money.
-it is certain that I would be taking the delivery of the shares and I will have to pay the money for the lot @ Rs.1900 but do I need to pay full money from fresh cash by depositing it into trade account or a portion of the money will be paid from blocked margin hence I need to pay the remaining balance?
-P&L keeps changing in the position tab in kite so if the option would be in the money on expiry then the premium would be high therefore a loss for me in that scenario would I need pay for that loss as well? and if yes then why as I am making the payment to take delivery?
-because P&L keeps changing in the position tab it is also increasing or reducing margin available/free cash under funds. so if loss under P&L exceeds available margin then would I get a margin call and if yes then would I just need to add funds equivalent to the size of purchase in case option ends up in the money on expiry?
-why free cash/margin available is being affected even after paying the required margin
It will be blocked as margin during the expiry week. You will notice on the last day/expiry day, if you have no other position your total blocked margin would be around 4,75,000 (1900 X 250).
@Ades thank you for your reply. Could you please help me in understanding few more things if you know about them?
i do ot have any problem in putting full amount as margin but right now the premium has increased from my sales premium i.e. around Rs.77,due to spot price nearing stick price therefore kite is showing me a loss of around Rs.11000 under position so do i need to pay that loss as well along with Rs.475000 if premium increases further on expiry. It doesn’t make sense to me still i would like to get it confirmed from someone who is more knowledgeable than me.
The highest I have seen the blocked margin reach is equal to the contract value. Even when including MTM loss.
The only exception was Yesbank back in February/March, where margin blocked was higher than contract value, but I think that was due to the high volatility in Yesbank and being in block list
Since there is no M2M(Mark to market) settlement for options, If you have a long call/short put position with the intention of taking delivery of shares, you only pay contract value (Strike price * Lot size).
Contract value = Strike price * lot size
In this scenario, a broker debit Rs 475,000 (1900 X 250) from your account to the delivery of the shares to your account. Ideally, you have paid Rs 455,725 because While you shorted the contract you have received a premium of Rs 19,725(78.90 X 250).
@Hariprasad0906 thank you very much for your help and for clearing my confusion.
from your answer, I have one more question which is not related to my initial question but if you can help me with that I would be great. for stock options, I can/have to take delivery on expiry If I have a long call/short put position but for index option(i.e. nifty/bank nifty), I believe it is always cash settle am I right? there is nothing like physical delivery of indexes is that correct understanding?
