As an option seller, I only trade during expiry days in Finnifty and Nifty. I am interested in pledging my amount to make some extra returns, but I am new to the process. I’m not sure whether to use SGB or Bonds for pledging. Could you please help me decide which option is best for me?
If you Purchase SGBs, There is chance/risk that you can capture gold appreciation/deprecation along with 2.5% Yearly interest. However If purchase Bonds, Capital remains same but yearly interest varies 6.5 to 7.5 % depending up on which bond you are investing.
Note : Liquidity in both SGBs and Bond will be less. so If you struck in long term bonds/sgbs getting out will be challenging.
While doing so comsider this fact.
SGB Or Bonds boths haircut is 10%, so lets say you invest 10 lacs, you will get 9 lacs to trade.
And you will get 6-7% from bonds,
On the other hand you can make extra by utlizing fully (10 lacs) for trading. The addional 1 lac can generat 1% return per month.
If pledged securities are giving you 6 percent, you are getting 60k on 10 lakhs. Since you are getting 9 lakhs back after haircut, it’s as good as you are getting 60k for 1 lakh. That’s 60 percent per annum.
1 percent per month from trading using that extra amount, is not gonna cover 60 percent per annum.
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I was assuming for cash component the pledging of bonds and sgb. My bad.
@Jason_Castelino No man. If haircut is 10%, pledged securities ‘CAGR is 6%, CAGR from Options’ sellings is 12%, then pledging gives only additional 4.8%.
Edit: Sorry you’re also right.
Nah. You get 60 percent. Calculate it on paper for both alternatives with actual values.
Who else is? 
So, unless you can generate more than 60 percent return using that additional capital, it’s always better to pledge debt funds and sell options.
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