Why Zerodha doesn't allow buying stock options prior to expiry, when client has sufficient margin or fund available in account

Dear @nithin and Nikhil,

This is one question haunting in my mind for many years - “Why Zerodha doesn’t allow buying stock options prior to expiry, when client has sufficient margin or fund available in account”?

I have gone through several topic in #TradingQNA & #ZerodhaSupport but the justification provided I failed to understand.

Let me put my understanding why it’s beneficial both for Client and Zerodha perspective.

Client perspective:

  1. Client will be able to hedge with lowest possible amount
  2. Client can buy multiple hedges for multiple positions/strategies which will increase profitability or reduce chance of loss
  3. Most importantly as a trader he or she will evolve as a professional risk based trader rather more speculative in nature

Zerodha perspective:

  1. Zerodha don’t have any underline risk in this as client has full margin/fund available & as per exchange rule will be bound to take physical delivery
  2. More physical settlement is more revenue for Zerodha as the brokerage is calculated on total contract & can give significant earning & that too with client consent & abiding exchange rule

I would really like to know what thought process behind this policy of blocking, same series option buy as hedge?

After all the purpose of option is hedging only, right. :thinking:

(Please note: Next series option is unnecessary draws additional premium & client is ready to take physical delivery.)

Anirban Chatterjee

There isn’t an issue for the customers who hedge, but it is impossible to determine who is hedging and who is speculating. Small amounts of premium can lead to large delivery positions that significantly add to the risk for the broker.

There are some conversations around having a Do not exercise type of feature introduced again for stock options. We should be able to enable this as soon as that happens.

Hi @nithin ,

Really wanted to draw your attention in this matter, that Zerodha RMS sporadically allowing taking position in OTM strike. Today I tried to take position in naked #BankNifty 45000 CALL for 6-Dec-2023 expiry.

First order got passed without any issue. Next minute second order didn’t went through and I got error message suggesting to buy nearer strike.

I tried after 7 minutes same order same strike, it pass through.

Really surprised how Risk Management is working here.

I know the intention not allowing OTM strikes as most retail loose money in OTM Option Buy.

But isn’t it customer choice? Isn’t it depriving their personal rights?

Even if your thinking is not aligned me here, then how in above scenario, 1st and 3rd attempt allow the buy and only in 2nd attempt it got blocked.

Wouldn’t you be interested to investigate is there any gap going on?


All screenshot is attached of order execution with timestamp along with error message.

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Hi @Anirban_Chatterje, if you have a short option position, we allow buying options at any strike price to the extent of the quantity shorted.

For example if you had:

BANKNIFTY 43500 PE short 90 quantity.
BANKNIFTY 44000 CE long 45 quantity.
BANKNIFTY 44500 CE short 30 quantity.

In this scenario, you are long 45 quantity and short 120 quantity. So will be able to buy 75 quantity of any strike outside the allowed range be it Call or Put option.

Let’s say now you buy 60 quantity of BANKNIFTY 45000 CE, which is outside the allowed range. After this transaction, you will be net long 105 quantity and short 120 quantity.

Next, if you place order for any strike outside the allowed range over 15 (say 30) quantities it will be rejected. If the order is placed for 15 quantities it will get executed.

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Thanks for explaining.

Hi Nihin,
I hope i heard right. Is dne going to be back soon?

There was talk, but has died down now.

Oh no…can all brokers go forward with a proposal again, nithin? I hope you can try your best for us…please…thanks in advance…