May be I miss some update, Today on 24th August 2022 why I am seeing the margin requirement for option buying greater than the margin required for option selling.
Margin for option buying idea 9 CE is 336000(lot size 70000) premium 0.30, while option selling it was 306109 where 0.30 premium for 9 CE.
I did not understand for option buying margin should be 70000 * 0.30 = 21000.
What happened why there is huge difference then what is the point of option buying if it needs this much margin.
and in case we are on the losing side we will loose 336000 which is very much the case with option buying.
what logic is this.
This is due to physical delivery of the stock option upon expiry. On Wednesday and Thursday of Expiry week for ITM stock option minimum of 50% of the contract value is required to hold the long position (In this case August expiry).
You can know more about physical delivery policy of Zerodha here
As physical delivery rule applies, 336000 becomes the actual value and 21000 becomes notional value as buyers are obligated to exercise the option.
Options are basically instruments of leverage, we buy stuff worth lacs in thousands. in cash settled options, the risk is defined to premium paid, whereas in physically settled options, the risk will be considered keeping complete margin in mind as u have to take/give delivery depending on ur position.
In simple terms if I buy that option with 336000 margin, i will loose 336000, so does that mean the people on the selling side will earn all that margin money i.e. 336000. or they will only get the premium amount 21000.
Please reply in simple terms the two below questions I don’t understand the financial technical terms.
Will I loose the entire Rs 336000 for buying an option with 21000 premium value?
Do the above entire margin i.e. 336000 will be received by the seller of the option or only premium amount 21000.
As Option Buyer, you will pay the premium, seller receives premium you pay. If the Call Option ends up ITM on expiry, then you have to take delivery at strike price. If you have cash, then it will be used to buy and deliver the stock - else the margin (the securities you pledged) will be liquidated to make good your obligation.