Unrealized Losses on Short Options: Effect on 'Available Cash'

F&O
1

  1. For the unrealized losses on naked Short Options (NRML), is it deducted from ‘Available Cash’ , instead of only the margin increase on ‘Cash Collateral’ ? During the day, I see on my dashboard that it is getting deducted from ‘Available Cash’. Will ‘Cash Collateral’ not do?

  2. In the above case, if my ‘Available Cash’ isn’t sufficient (for unrealized losses on ongoing nrml short option trades), will the ‘Cash Collateral’ make up for it, or will it go into Debit Balance, despite the sufficient Cash Collateral?

  3. If the losses are already instantly deducted from “Available Cash” even for Options, what happens when I Squareoff? - Double Jeopardy?

@siva @ShubhS9

2 Likes
2

There will be no marking of market for options on ledger, on frontend we deduct from cash from yesterday’s close to ltp, but this is only on frontend and not posted on ledger.

3

@siva

I need further understanding. Here’s a hypothetical scenario

  1. Available cash : 1,00,000

  2. I sell a naked option for Rs 100 and receive 7,500 premium. Available cash on Kite becomes 1,07,500

  3. 2 days later, option price is 120 and there is an unrealized loss of 1,500 on the short option. Available Cash becomes 1,06,000 after the proactive deduction.

  4. I decide to squareoff at 120 which requires Rs. 9,000.

What will be the ‘Available Cash’ after squareoff ?

4

Available cash will be 1,07500.

107500-9000 = 98500.

2 Likes
5

On Kite I see that deduction has happened from “Available Cash” as per unrealized loss.

6

As mentioned above this is only on frontend, not posted on ledger, tomorrow you can see full cash, this is done to cover for margin increase, or people convert to mis and will keep writing more options with premium received.

3 Likes
7

Ah ok. Makes sense. Thank you.

8

what if available cash becomes negative …will i be charged peak margin penalty on intraday basis?

9

No for above case.