Why Stock Option buying with market orders not allowed at Zerodha

Why stock options can’t be buy at market price with zerodha. If it is possible with index option then it should be with stock options at least which are more liquid. Today I tried with Infy cal and put but in Kite and Pi it wasn’t possible. I then do call and trade first for buy and at noon for sell. Is it trick to get more brokerage…? How to buy it any ways in PI or Kite.

Yes, we don’t allow market orders on stock options as most stock options are very illiquid, which means the bid-ask spread is quite high. Let me explain with an example.

Assume stock X is trading at Rs 100. Say you decide to buy 110 calls of this month (lot size 5000) expiry. You add 110 calls that you see LTP of Rs 0.5 on your watchlist. I am in a hurry to buy this call and decide to place a buy order without looking at the market depth. I decide to buy 5 lots, knowing the maximum I will lose is Rs 12500 (25000 x 0.5).

Assume only 1 lot is being offered at Rs 0.5 and the rest 4 lots at Rs 5 (this is an illiquid contract). Now, 1 lot gets bought at Rs 0.5 and the rest 4 at Rs 5. So suddenly instead of Rs 12500, Rs 1,02,500 gets blocked in this trade ( 0.5 x 5000 + 5 x 20000). If I want to sell it immediately, the best offer is around 0.45. I just lost Rs 1lk because of the liquidity.

You might think that this doesn’t happen often, but it was a daily affair for us when we were allowing market orders on stock options. We have had many clients complaints after executing the trade.

Even though there is no market order, you can use a limit order like a market order. Place a buy order with limit price much higher than LTP or place a sell order with limit price much lesser than LTP, limit order will automatically turn into a market order. The good bit here is that the limit price you enter will act as a protection and ensure that your order won’t get executed beyond this price.

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I am also facing the same problems as stated above. This is a big hurdle for intraday trader, where every second is important ! Phone calls also takes longer time to attend and charged also for trades.
Please resolve above issues urgently !
RV0619

Thnx Sir ji … I ll try it tomorrow onwards. But the problem is when you know the result is bad you need to square off your stock / call buy order imdt. you can’t look always at CMP and place limit order regarding that coz it changes every second very fast after result/news announcement. Market order not only save money but can make large profits. You was trader so you can understand what I am telling so please enable market orders at least in high liquid stocks.
…and yes Please attained calls imdt. esply at morning session. I already make Rs. 15,000 on that trade with almost zero risk hence extra Rs. 20 is not a big deal whats imp is trade should be done timely. These opportunities never comes every day.

Hi Nithin

Instead of forcing clients to not use the mkt order facility for stock options why cant there be an option for users to choose whether they wish to have mkt order enabled for stock options? This way clients who approach SEBI on this issue cant take umbrage anymore.

You didn’t look at the other angle in this. Same example as above

Assume only 1 lot is being offered at Rs 0.5 and the rest 4 lots at Rs 5 (this is an illiquid contract). Now, 1 lot gets bought at Rs 0.5 and the rest 4 at Rs 5. So suddenly instead of Rs 12500, Rs 1,02,500 gets blocked in this trade ( 0.5 x 5000 + 5 x 20000). If I want to sell it immediately, the best offer is around 0.45. I just lost Rs 1lk because of the liquidity.

If client doesn’t have this Rs 1lk extra in his account, money gets debited from the broker immediately. He has to then recover this from the client separately. The risk is quite huge on this.

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Very satisfied with your answer.
You people are doing a graet job

how can it debit from your account if he does not have money to buy that value of contract ? order would simply be cancelled right?

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A suggestion : In market order, zeroes should manage to use market protection % at that particular time for their trader. This way they draw a boundary to protect from abnormal prices.

if the client doesn’t have the money for buying 5 rupees contract how the order is processed ?

With market order not allowed for options, very purpose of basket order is defeated.

Moreover, there will always be some strikes which are illiquid in any instrument.

Say, I create a pay off chart for biocon … like below …

unless all legs are executed, it will be just a theoretical. For biocon, even at 420 PE (spot is at 446) , following is the DOM image… Please check for liquidity… Spread is very less and depth also is fine.

I think, Zerodha should provide a list of strikes that are allowed in every instrument in stead of blocking completely. Else, very purpose of basket order is defeated. Even if I do manually all options by playing with LIMIT order, at the exit point, I would definitely wish to exit at once.

If you do not wish to go this way, at very point when basket is created, it should flash that option orders are blocked. Now the problem is only after pressing the execute button, client comes to know only some legs have gone through and options have been rejected. This is a big issue and very frustrating.

To start with most uses baskets on Indices. Coming to stocks it is one time learning that we don’t allow market orders for stock options, once known people will not try using market orders next time.
We blocked market for stock options because to avoid slippages and many times clients lost more money than they have.

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To start with most uses baskets on Indices.
Well , this is a assumption; If this is a assumption, it should be explicit and mentioned in the basket order documentation.
Coming to stocks it is one time learning that we don’t allow market orders for stock options, once known people will not try using market orders next time.
With basket orders and margin benefits (option hedging), one would definitely expect better experience. Expecting a client to loose money to teach him/her some thing is not allowed is not expected from Zerodha (@NIthin). Definitely it is not a positive way to make people understand the limitation of a platform/ the whole system! I burnt my fingers with this and lost 1K. From whatever I read about Basket order, which boasts of better margin money (when option is bought before a sell) does not allow Market order even when the stock options are liquid, ridiculous. Not sure if this is explicitly documented in the Basket orders.

One statement “DO NOT USE THE BASKET ORDER FOR STOCK OPTIONS” is sufficient.

I do not wish to bring in other brokers link here. But context is forcing is me to do so.

Take a look : (here)

ZERODHA CAN CONSIDER ALLOWING STOCK OPTION PLACING ORDER AT MARKET RATE AT LEAST FOR
NIFTY 50 STOCKS WHICH ARE HIGHLY LIQUID. THIS MUST BE TAKEN TO THE PERSONAL KNOWLEDGE OF
Mr.NITIN…THEN ONLY THERE WILL BE SOLUTION…

No, even those are no liquid enough, only some 10 to 15 stocks current month are liquid , rest all has wider spreads and if big number of lots are involved then there is lot of slippage.

Hello sir i didn’t understand the fact in your above example that…

Let say out of 5 lots… 1lot is executed at Rs 0.5 …and the rest 4 lots is executed at Rs 5…

How the ask price fluctuate from 0.5 to 5 …even though the stock is inliquid…

Can u clarify a little bit…

Prices are driven by demand and supply, in illiquid contracts there are very less buyers and sellers and whatever there are, will be quoting their buy or sell price very far apart.

So when you place a Buy market order, your order will be matched with whatever the seller is willing to sell at, it can be at 0.5 or Rs. 5, so as and when these orders start filling the price of the scrip will start fluctuating accordingly and that will be shown as LTP (Last Trade Price).