Hello guys!
I have just started options trading in Stocks, and I am just focused on two strategies. 1. Iron condor and 2. Vertical spreads.
I need to know what happens if I don’t or forget to get out of my positions on the expiry? And what happens if one of the options are deep in the money? I am just scared of forgetting to square off my positions.
Should I worry if I am short on one call/put and long on one call/put , and both of them are in the money?
Thanks!
If your position expires OTM (Out of The Money), it will expire worthless.
If your position expires ITM (In The Money), since this is Stock Options it will be physically settled.
This is how Physical Settlement works.
Long Call = Take delivery of underlying shares.
Short Call = Give delivery of underlying shares.
Long Put = Give delivery of underlying shares.
Short Put = Take delivery of underlying shares.
If your position is hedged and in case both of your positions expire ITM, your physical delivery obligation will be netted-off against eachother. You can learn more on Physical Settlement here.
So, I need not to worry of physical delivery if I buy a call and sell another for a credit spread in the same expiry, right? A credit spread or iron condor as mentioned in Physical Settlement link you’ve provided.
The Physical Settlement page says, I need to have more than double margin prior to expiry day, I have open iron condor position in TCS which blocked around 50,000 margins, that means I got to have 50,000 extra available margin in my account in order to carry this trade through the expiry? Otherwise I will get a margin call?
These are the scenarios in which net-off happens, as you can see, both your positions have to expire ITM for net-off.
These are current margin requirements if you want to execute TCS Iron Condor, you require a margin of 76k are getting a margin benefit of 181k.
During Wednesday and Thursday of expiry week, the margin requirement for Short positions will increase to twice of current requirements (for 2400 CE requirement will increase from 125k to 250k and for 2300 PE from 132k to 264k) while you will continue to get the margin benefit of 181k, so your margin requirements during that period will increase from 76k to 333k (250k + 264k - 181k Margin Benefit).
We all know that spreads and iron condors have limited loss and limited profits, but still why do I have to pay so much or margin?
You are saying I will need 3,33,000 during expiry period. But what will happen if I don’t have that much of sum? My capital is 1,25,000. In that case, what will Zerodha do? Square all my positions off?
As physical settlement carries risk, margins in general increase during expiry and so do margins for Iron Condor.
When you don’t have adequate funds, you will receive margin call, if you don’t bring in required funds your positions will be squared-off by RMS.
Is it only Zerodha or other brokers also blocks margins? Please guys, clarify it for me.
Okay @ShubhS9 , I got it. But still I wonder why is it so? Because I will not keep my position naked in any case. That is for my safety. I will never ever do that.
This is my current position
But according to you, prior to 2 days of Sept expiry, I got to have 3,00,2000, right? Based on below values
If it is so, then definitely, I won’t have any other option but to close my position with whatever result I get. Because I can add maximum 3 lacs to my account and not more than that. Can Zerodha let go of some of the additional margins or will my orders get squared off?
And I am damn sure, brokers will square off losing sides, while it is always better to close winning side.
This is according to exchange rules, during expiry week all brokers are obliged to collect extra margins.
As I said above, Physical Settlement carries risk, that is why additional margins are collected.
This cannot be done, you will have to keep adequate margins to avoid square-off.
Thank you ! But I still have on last question now.
This is my position
Let us assume one of the short side of call or put loses more than 100% or 200%, before expiry week. Then will I have to add margins as well ?
Is it like - If I am losing 1,00,000 on short call then I got to have 1,00,000 in my account ? The exchange or broker won’t consider the amount of money I will be making in long call?
Did your margin requirements increase? I am in an iron condor too, but all my options are OTM at the moment.
Margin requirements will increase to twice of SPAN + Exposure margin on last two days of expiry. You can learn more here.
So 55k will become 110k?
