Square off Loss making Sold option with Collateral margin

Hi, I have received collateral margins from pledging shares and used this margin to sell a call . Now, on Monday during expiry week, the option is loss making (price has breached strike). I have not unpledged the shares yet. To square off the option, would I be asked to post cash? After squaring off I will unpledge and sell the shares and make a profit on the overall trade.

Can somone help me?

Please help someone

Hi @kk911

If its an overnight position, As per regulations, 50% of the margins blocked for overnight derivative positions has to come in the form of cash or cash equivalent. The other 50% of the margin requirement can come from other non-cash equivalent collateral margins (margins received by pledging liquid funds are considered cash equivalent).

You will be able to unpledge your pledged holdings only to the extent of the unused collateral. The unpledge request will be rejected if the collateral is used for the positions taken. In such cases, you will either have to bring in cash or square off your position to be able to unpledge your pledged holdings. If there’s a negative balance in your trading account, the negative amount needs to be cleared before placing the unpledge request.

You can read more about pledging here : What is pledging and how does it work?

Hope your query is resolved. :slight_smile: have a nice sunday and week ahead.

Hi Meher,

So, If it is a negative position that was taken using collateral margin, then square off would require additional cash, have i got it right?

Square off would not require additional cash. You can square it off automatically.

The remaining amount in your account will be considered as unused collateral.

Let me illustrate this with an example,

Let us assume, you have collateral margin worth 1 lac

you took an sell call option trade and made a loss of 20000

You can automatically exit that position and the remaining amount of 80k will be your unused collateral which you can unpledge. :slight_smile:

Hi Meher, that is a great explanation, sorry to keep asking more questions haha, So taking your below example, off I do unpledge my balance 80k unused collateral, will the 20k loss be adjusted by the broker selling 20k worth of my shares?

No problem at all. :slight_smile:

If you have traded with Collateral margins & incurred a loss, you will need to bring in additional funds to make up for the MTM loss. In case you don’t the RMS team could sell your pledged shares to make up for the loss.

This support article explains the full process in detail :