This Could be it FnO Traders!

Yes… This could actually be it!!!

Go home cash traders… this is not for you… :stuck_out_tongue:

LET THERE BE LIGHT!!! LOLOL

THE DARK AGE HAS PASSED… :blush:

@nithin I’m guessing it will take atleast 1 month to implement this new margin system after its approval next week…

Based on this… it should take till march to implement these reduced margins on all instruments… right ?

Brother, just the word “may” puts me off, in terms of approval and implementation it takes hell lot of time. It’s better not to speculate and wait until something concrete comes because nothing can be achieved rather than more tension. :yawning_face:

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Yeah… I get it… This is just to spread some hope to the souls being battered …

Besides that… Who wouldnt want to know the readiness of our esteemed, magnanimous, technically advanced, supportive, responsive & proactive Zerodha!! @nithin to implement new margin system…
:slight_smile:

Really!?:stuck_out_tongue:

If you are asking that question… may be you’re not an options trader…

Ask any professional options trader and you will get your answer.

I am not an Options trader, but I am hoping to be one in the future when I have enough capital, so can you please explain to me what the situation was in the past and what this means for the future?

Thanks in advance

It is very difficult to explain if you are not an options trader…

But for the sake of brevity…

Earlier… If your maximum possible loss was 100 rupees for a ‘spread’ trade, 400 to 500 rupees were blocked from your account balance to make the trade… (Sometimes it is like 1000 to 2000 is blocked… in the name of margin… WHICH IS TOTALLY ABSURD)

Now the question to ask is… When the maximum possible loss is just 100 rupees(NO MATTER what happens to the market…)… what is the need to block THE EXTRA 1000 to 2000 rupees… in the name of margin.

Now… This will change (well… it is “expected” to …) If the max loss is 300, may be 350 or 400 will be blocked as margin…

This SAD situation is ONLY in India… Outside India… everybody is enjoying the benefit of less margin blockage for “hedged spread trades”.

We took more than 2 decades to ‘EVEN CONSIDER THE PROPOSAL for REDUCING MARGINS’…

Speaks volumes…

Ok, I get the picture. So this means if this proposal goes through then for people who are not trading naked options less margin will be sufficient.
That means if I want to deploy something like an Iron Condor on Banknifty weekly options, I don’t have to pay up 2 lakhs as margin. Is that correct?

Yes…

For an iron condor with max. profit of 1k and max loss of 5k… I’ve seen margins go as high as 2-3 lakhs… That is just for 1 lot…

EXPLAINS THE WORLD WE LIVED IN SO FAR… Hence… I referred to it as “Dark Age”…

This will be quite straightforward to implement. Just the values of sigma, lambda, SOMC (short option margin), Price scan range (PSR), etc will change. All RMS systems of brokers will easily adapt to this.

But you maybe need to temper your expectations in terms of margin benefits. I think it will be lower by around 65% from current levels. So if margin required today for a vertical spread is 1lk, it will drop to maybe around 30k. This is required to cover for execution risk.

So say we are shorting 12300 calls and buying 12400 calls

The max loss on this is 70 points or around say Rs 6000. Currently the margin required is

This Rs 90k required will drop down to maybe around Rs 25k. It won’t become 7k. The reason like I have explained earlier, if the client exits the buy options first, then suddenly you end up holding short positions with unlimited risk and hardly any money.

But yeah, let’s see. :crossed_fingers:

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Ok… Fair enough…

But… Can you not force traders to close the short leg first ?.. IF THE TRADER HAS TAKEN HUGE POSITION JUST TO TAKE ADVANTAGE OF THE REDUCED MARGIN… Then you should force him to close the short part of the spread FIRST… imho… That would be nice… as it can help reduce margins further… ?

Only situation where a trader might not be able to close the short leg is when there is no liquidity… So, if the trader does not want to exit the short leg first, then make sure that he/she cannot exit the spread trade completely…

Since the risk is fixed, you can also have peace of mind…

With this adjustment, your execution risk is eliminated…

Traders can benefit even more… @nithin Do you think this can work ?

====================
we can make the margin required to 7k , instead of 25k , as u said .
we can patch-it up this risk with a simple mandatory condition i.e . the trader can’t exit the one position at a time . If the trader wants to exit , he compulsorily has to exit both the positions simultaneously !!!

is the above thing possible ? so that the traders can enjoy margin benefit in the hedge positions !

Won’t that be problematic for the trader? What if the the long end gets executed but there’s no liquidity for the short end? What then?

Just because margin is less, it won’t magically make profits… Bigger the position size with a fixed capital, higher chance to lose.

With reduced margin and bigger position size if we are hitting max loss twice or thrice consecutively on spreads too, it will be considerable portion of capital eroded…

Also I doubt if it’s beneficial for zerodha since they charge flat 20 per order.

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Forcing the trader to exit short leg first is an option…

@nithin what if we are short in say 12400CE and 12300PE?

Or maybe Zerodha can introduce basket order facility, so when trader wants to enter hedged trade he creates a basket of than particular strategy so his/her strategy will be executed at the same time and the same when squaring off.

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We as Zerodha can build this out fast, but the entire broking community in India will have to build this. It will all take time. But this is a good start, eventually I think the margins will go much lower.

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I’m glad you said… you can do this…

Please do this… This is the best thing you can do to help traders…

Others will be forced anyway… if they dont catch up…