If Nifty 7500 calls are trading at Rs 50, I need only Rs 2500 to buy it if I expect the price to go up. But if I have to short the same option expecting the price to go down, I almost need Rs 25000 to take this position, can someone explain why?
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Shorting/Writing options implies selling an option without owning it.
When you short/write an option, theoretically you run the risk of unlimited losses which is why brokerages ask you for higher margins.
When you buy an option your losses are limited to the amount of premium you pay which is not the case when you short/write an option.
So in the above example, if you bought 7500 at Rs.50, you’d pay a premium of Rs.2500 and at no point will you stand to lose more than 2500. However if you’ve shorted 7500 CE @ 50, and if the markets bounce and if the value of 7500 CE goes to 200, your losses would be (200-50) = 150*50 = Rs.7500, so potentially you can lose any amount of money which is why brokerages charge you higher margins.
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