Basics on Options Shorting/Writing

January 9, 2014

Traders,

Option writing/shorting is the act of selling either calls or puts first, hoping that the value goes to zero or buy it back at a lower price to earn a profit.

Trading in index options has been surging over the last few years, accounting for almost 75% of the total derivative market turnover on NSE in 2012-13. Most retail traders usually buy options, i.e., buy calls if the bet is that the market will go up or buy puts if going down. The idea behind this post is to explain the basics on option writing/shorting, and how including them in trading can improve the odds of winning.

We use  the words option writing/shorting and not option selling, to signify that the options were sold first before being bought. Selling options is used when exiting options that were already bought.

Why Short/Write Options

Here is some food for thought, between 70 to 95% of all options usually expire worthless. What this means is that by buying an option (calls or puts) the odds of losing are significantly more. Now the question is if options buyers are inherently taking a higher risk, who is on the other side of the trade with better odds of winning? The answer is “Option Writers”. Let me explain with a basic introduction to what comprises option premium, different types of options, open interest and an example showing how most options expire worthless.

Option Premium

Option premium, the value of calls or puts that you see on your trading screen has two components, Intrinsic value, and time value.

Premium = Intrinsic Value + Time value 

Intrinsic value

Intrinsic value is how much the option is in the money, or simply how much you would get if the options were to expire right now.

  1. If Nifty is at 6100, Intrinsic value of 6000 Nifty calls is 100 (6100 – 6000) which is how much you would get if the option expired right now.
  2. If Nifty is at 6100, Intrinsic value of 6200 Nifty calls is 0, since it is out of the money which is how much you would get if the option expired right now.
  3. Similarly if Nifty is at 5900, Intrinsic value of 6000 puts is 100 and 5800 puts is 0.
Time value

Time value is the portion of premium which is over and above the intrinsic value of an option, i.e., Time Value = Premium – Intrinsic value

Say if Nifty is at 6240,

  1. Nifty 6200 call is at Rs 100, This premium of Rs 100 = Rs 40 (Intrinsic value)+ Rs 60 (Time value)
  2. Nifty 6300 call is at Rs 40, This premium of Rs 40 = Rs 0 (Intrinsic value) + Rs 40 (Time Value)
  3. Nifty 6200 put is at Rs 60, This premium of Rs 60 = Rs 0 (Intrinsic value) + Rs 60 (Time Value)
  4. Nifty 6300 put is at Rs 140, This premium of Rs 140 = Rs 60 (Intrinsic value) + Rs 80 (Time Value)

Different types of options

  • ITM (In the money), all options which have some intrinsic value. So if Nifty is at 6240, 6100 calls, 6300 puts, 6400 puts, etc. are ITM.
  • OTM (Out of the money), all options which have no intrinsic value and only time value. So if Nifty is at 6240, 6300 calls, 6400 calls, 6100 puts, etc. are OTM.
  • ATM (At the money), all options with strike price very close to the market price. So if Nifty is at 6210, 6200 calls and 6200 puts are ATM.

Open Interest (OI)

The total number of open contracts for any option is called its Open Interest. So if  Nifty 6200 Jan 2014 calls have OI of 30 lakh, that means all buyers of 6200 calls together hold 30 lakh contracts sold to them by option writers.

Example

Here is OI data collected for 8th Jan 2014 from the NSE website for both calls and puts for 9 most active strike prices on Nifty.

Nifty OI data for 8th Jan 2014

In the example above if Nifty were to expire today at 6200, the total options that would expire worthless would be : 39295000 (15102150 + 3150000 + 4235750 + 16807100) which is around 83% of the total OI of all calls and puts combined.

Yes, an option buyer can take quick intraday trades for a profit, or be on the right side of the market and have the potential of making unlimited profits, but the odds of winning are always in favor of an option writer who benefits with majority of options expiring worthless.

The underlying reason for this is because of the time value component of the option premium (Premium = Intrinsic Value + Time Value). A buyer of an option is continuously fighting time because if the trade doesn’t go in his favor immediately, the time to expiry keeps reducing(time value), and hence the premium itself. An option writer on the other side has time as his advantage, once in a trade as long as the market (intrinsic value) doesn’t move against him the time value keeps reducing, increasing his odds of winning over an option buyer.

Option Writing – Risks

An option buyer has limited risk and unlimited profit potential, so if 1 lot of 6300 Nifty call was bought at Rs 100, the maximum loss on this trade is the Rs 5000 (Rs 100 x 50), and if Nifty went to 7300 the call would make a profit of Rs 45,000.

An option writer has unlimited risk and limited profit potential.

When you write an option, say 1 lot of 6300 calls at Rs 100, Rs 5000 (Rs 100 x 50) which is the premium paid by the buyer is credited to your trading account and this Rs 100 on the premium is your maximum profit potential. After taking this trade if

  1. Nifty is 6200 on expiry, value of 6300 calls on expiry is 0, and you get to keep the entire Rs 5000.
  2. Nifty is 6300 on expiry, value of 6300 calls is still 0, and you get to keep the entire Rs 5000.
  3. Nifty is 6350 on expiry, value of 6300 calls would be 50, you have to give back Rs 2500( Rs 50 x 50) on expiry, but still earning you a profit of Rs 2500.
  4. Nifty is 6400 on expiry, value of 6300 calls would be 100, you would have to give the entire Rs 5000, no profit no loss.
  5. Nifty is 6500 on expiry, Value of 6300 calls would be 200, you would have to give back Rs 10,000 whereas you had received only Rs 5000, causing you a net loss of Rs 5000.
  6. Nifty is 7500 on expiry, Value of 6300 calls would be 1200, you would have to give back Rs 60,000 whereas you had received only Rs 5000, a net loss of Rs 55000.

Since the potential losses are unlimited, it is best as a beginner option writer to be conservative, and allocate only a small portion of your trading capital when starting off.

Option Writing – Margins

Since the risk is unlimited for an option writer, the exchange blocks margin and similar to futures is marked to market at the end of every day. So to buy an option at Rs 100, you need to have only Rs 5000 ( Rs 100 x 50), but to write an option you will need around Rs 25,000 which is marked to market daily, which means that if there is a loss you are asked to bring in those funds to your trading account by end of the day.

Option writing margin requirement varies for every contract, and as on today Zerodha is the only brokerage in India to offer a web based SPAN tool that lets you calculate this.

Example

You have a bearish view of the market and Nifty is presently at 6172. You decide to write/short 6200 Jan 2014 calls at 90 expecting to profit if the value comes down below 90 on the premium.

Check the SPAN calculator for the margin required as shown below:

Option Margin calculation

 

This is just an introduction for traders looking to start off on option writing, exercise caution, and once you are clear with the concepts look at combining short options with stocks, futures, or other long options, to create positions that can increase the odds of winning while trading considerably.

 

Happy Trading,

Founder & CEO @ Zerodha


Post a comment




822 comments
  1. Ajay Nair says:

    I initiated a double diagonal calender trade of just 2 lots with a margin of 1 lakh. I had 5 lakhs in my trading account but there was a debit shown in my ledger ,Can anyone explain what has happened?

  2. Harsh vardhan dwivedi says:

    During option trading, real time trading opposed by your software when customer seeks profit.
    Lot of time i saw that type. Why a customer needs you as broker if uh can’t match real trading time.

  3. vishnuprabhu says:

    Hi,

    Is short selling available in options trading ?
    Has SEBI blocked shorting in options ?

    someone kindly please help with this !

  4. Venkatesh says:

    Hi,

    I’m curious to know about one particular case as an example.. Can you help me to understand it simple way..

    Lets say,
    Kotakbank stock price : 1710 on 29th June
    Bought : Kotakbank JUL 1800 CE @ 26rs with 2000 quantity
    Kotak touched 1740 on 1st July and CE is at 31rs.

    Later Kotakbank came back to its old price on 1710 and CE price dropped to 19rs and trader can see the loss here.
    Same stock rose to 1738 on 5th July but CE is at 19rs.

    So how come, the CE price haven’t moved at all? And what happens to this call when the stock touch 1800 or nearby? Will the trader will be in a position to recover the loss?

  5. Anchor Vishu says:

    with a fund value of 2 Lakh rs, how much quantity can I sell as a “Put Seller” in Nifty50 or BankNifty. Please Reply

  6. VIRAG says:

    Please start Bracket order without additional margin as its annoying to put one by one tgt and stoploss in perticularly in banknifty and nifty options buying in current volatile market. all are providing BO except you. As a number one broker consider it seriously.

  7. Satyakam says:

    I have done option writing on voltas 2 days back and on that day my position profit was Rs1000 and my fund was Rs40000 and when I saw today my position profit is Rs3000 but my funds was Rs26000. I am not able to understand the reason. Can you explain it?

    And also while exiting this trade it require Rs 12000 on 2 days back and yesterday it showed Rs25000 and today it shows about Rs1100. This also I wasn’t able to understand. Can you explain this?

  8. NIRANKAR SADAN says:

    I sold NIFTY MAY 13500 PE Qty 150 . What will happen when it comes in the money

  9. Mohit says:

    Dear Sir,
    My query is that whether the CE sell position can square off automatically without my consent
    Thanks

  10. Chandan says:

    Hi Sir,
    I have around 7500 NIFTYBees in my Zerodha account.
    I have few questions as below:
    1) I read somewhere that nifty etfs can be used as 100% cash margin against option writing.
    Please let me know if it is correct?

    2) Suppose, I have pledged 7500 Niftybees quantities and suppose current nifty strike is 14500 write One rike price . Suppose, nifty jumps to strike 15500 .
    In this case what will happen?
    Will my sell call will be sqaured off ?
    Do I need to book my loss and then unpledge niftybees and sell in open market to recover my lossed or broker will sell pledged niftybees on my behalf to recover the loss?

    • Chandan says:

      Ex: current nifty at 14500
      Sold one lot CE at 15000 and afterwards nifty jumped to 15500, then in that case what will happen.

  11. Sunil says:

    Hi, What is the maximum loss in option selling for indices e.g during market crash and in lower circuit. Is there any mechanism where automatically the positions are squared off?

  12. Kiran says:

    Hi Zerodha and Nithin,

    I have been charged with 12578 as the short margin penalty for the 18th March, where I didn’t carry over that much position for the penalty.
    Is this penalty levied for intraday also or only overnight ,
    Still if it is the case there is something happened wrong here, Please Help here to correct this debit.

    Thanks,
    Kiran

  13. Ravindra Patil says:

    Very useful information.As I never traded in options. I am trying to learn options trading and above information is good for basic learning.

  14. Sambhav jain says:

    Hi Sir,
    can you please explain how can i short sell a nifty option and hold it till the expiry date.

    For instance, today is 10th Feb and monthly expiry date is 25th Feb. Then how can i short sell a nifty option on 10th Feb and hold it till 25th Feb. I will be squaring off the position on expiry day before close. Also, what is the approximate margin required for this trade (assume strike price 15000).

    • Matti says:

      You can sell the option using an NRML order and hold the position until expiry. The margin required will be shown on the order screen. This margin changes with movement in Nifty.

  15. Bandana says:

    @Nitin Kamath Sir,
    Due to OI restriction, I am not able to buy options outside an certain price limit in Nifty option, due to which I am not able deploy my hedged OPTION trading strategy and also not able to take advantage of margin benefits of the new margin system implemented recently by Sebi . Zerodha suggested an option to open a custodian account with Orbis Financial but there I cannot use the collateral margin, though I have pledged my shares with zerodha. Again without Collateral margin, I am not able to trade OPTIONs with Orbis Financial. Pls provide solution so that I can trade OPTIONs with Zerodha without restrictions with the strike prices and with the collateral margin I get for the shares pledged with Zerodha.

  16. Karthick says:

    Hi, just a quick question ..as similar in future , is shorting is possible in options ( calls and puts)
    Eg. banknifty is trading at 21100, am trying to buy 21200 CE at 200 rs and selling at 220 rs.
    Incase if I feel it may go down, then is it possible to sell first in 21200 220 rs and buy at 200 rs?

  17. Mayank Gupta says:

    @Nitin Kamath Sir,
    I am an old and a satisfied customer of Zerodha. But due to OI restriction, I am not able to buy options outside an certain price limit in Nifty and Bank Nifty options, due to which I am not able deploy my hedged OPTION trading strategy and also not able to take advantage of margin benefits of the new margin system implemented recently by Sebi . Zerodha suggested an option to open a custodian account with Orbis Financial but there I cannot use the collateral margin, though I have pledged my shares with zerodha. Again without Collateral margin, I am not able to trade OPTIONs with Orbis Financial. Pls provide solution so that I can trade OPTIONs with Zerodha without restrictions with the strike prices and with the collateral margin I get for the shares pledged with Zerodha.

  18. Sankaran.S says:

    Hi Sir,
    can you please clarify following doubt regarding compulsory physical delivery policy ?

    If I have 1200 nos. Axis Bank shares in my Zerodha account, then is it possible to write 1 no. Call option without maintaining margin in my account?

  19. Rahul says:

    Hi Zerodha Team,

    Your comments and any pro tip will be very helpful. Thanks in advance

    Query 1 :- If I Sell PE 600 (Lot size 1200) at a premium of 10 of Infy (CMP of INFY is 700) and it expired OTM.
    Will it make any difference in my profift even when price of premium went to 20 after I sold INFY PE 600 Put Option.

    Query 2 :- If I Sell CE 750 (Lot Size 1200) at a premium of 10 of Infy and it expired ITM at CMP as 760. What action will be executed here?

  20. Ajay Bharti says:

    Hello Sir..
    If, I write a PUT 20000 by 100 Rs premium and at the expiry date premium reach 150 but strike price is 19980.
    then, what would receivable premium ?

  21. Gurubasavaraja AMS says:

    Thanks for your reply Sir, can you give one Example on how to write option using KITE with particular strike price.

  22. Gurubasavaraja AMS says:

    Sir
    Can i write option for Intraday perspective? write @ morning and closed by evening.

  23. JP SHARMA says:

    Sir
    I have shorted a February call of Indusind bank. My query is as follows:
    1. When do I get the premium in my account?
    2. Do I need to do anything to claim the premium on expiry?
    3. What will happen if I do not square off my short call before expiry?

    Regards

    JP Sharma

    • Matti says:

      You receive premium as soon as you short. If your call expires in the money, you’ll have to give delivery of the Stock. If it expires out of the money, you needn’t do anything.

      • Sankaran S says:

        Hi Sir,
        I have following doubt, due to compulsory physical delivery policy, can you please clarify ?

        If I have 1200 nos. Axis Bank shares in my Zerodha account, then is it possible to write 1 no. Call option without maintaining margin in my account?

  24. Mohit says:

    Why there in no margin available in Buying Options???

  25. Krish says:

    If I hold 500 shares of RELIANCE (a stock in the Physical Settlement List) in my Zerodha Demat Account, can I write a Call Option for 1 Lot of RELIANCE (1Lot=500 shares) by blocking my Demat Holding in that stock, and allowing you to deliver from that holding should the Call Option expire ITM – all without requiring any additional Margin money (other than the brokerage, exchange charges & STT to be paid in cash) ? Is there any way to Block or Pledge my Holding to achieve the above in Zerodha Trading platforms?
    I would expect this to be possible, but all the articles I have seen on Margins for ITM Short Call positions at Settlement do not discuss how my holding in the underlying can meet all Margin requirements if I am ready to deliver the stock held my Demat account… This is critical for me as I hold stocks which I am ready to let go at a certain (Strike) price, but not enough additional money to pay for Margins in addition to my investment in the stock itself, nor money to buy back the Call Options if the stock price zooms at delivery. So, please clarify on this point, particularly for Stocks in Physical Settlement (where any Settlement obligation can be met by simply delivering the held shares and collecting the Strike price).

  26. deepak says:

    I want to write Call OR Put option of Nifty Is it possible for using my Holding share value If yes, you are charging any interest and how much. Suppose I hold 5,00,000/- shares, how many nifty option lots i can write.

  27. Vikram says:

    Hi Team,

    It would be of great help if you can make me understand the below scenario, i am new to nifty options, hence want to know how loss in option writing happens.

    Say i do option sell of banknifty with a strike price of 31000 and the current price is 30000 at a premium of 50 and lot i guess for banknifty is 20.

    So till the date of expiry, if banknifty doesnt reach the strike price, i earn the premium which is 50*20 = Rs 1000.

    But say if banknifty goes beyond the strike price of 31000, and i decide to sell it at (or reaches at expiry) 32000, will my loss be (1000*20) -1000 = Rs 19000 ?

    Thank you in advance, this will really help me understanding option writing.

  28. Gurubasavaraja AMS says:

    Kamat Sir

    suppose i buy put or call option today and can i square of next day or any other day before expiry? or is it compulsory to hold till expiry? please explain sir.

  29. Mahesh Balkisan Jaju says:

    1) Suppose I write Call and Put option of Bank Nifty around 220 each ( 220 for Call and 220 for Put), I want to hold this contract till expiry. At the end of first day if premium is 400 ( in call and put combined), then how much amount will be credited to my dmat account and if premium is 500 then how much amount will be debited from my dmat account.. Pls explain

  30. Sreenivas Madhavan says:

    Hi,

    On 16 April 2019, I shorted “TCS APR 2080 CE” at LTP = 68.5
    On 23 April 2019, I exited “TCS APR 2080 CE” by buying at LTP = 70. Close price of TCS on 23 April 2019 is 2155.05
    In the position page of Zeroda, it shows loss of Rs 375. (this was expected)

    In Funds page, I can see Rs 17500 is debited. Why is this amount debited?

    regards
    Sreeni

    • Faisal says:

      Sreeni, Rs 375 is your total loss for the position. Where exactly do you see the 17.5k debited? Can you confirm the same on your ledger statement or contract note for that day?

  31. s. chandrasekaran says:

    I wish to trade in option selling and i have 8 lakhs money in FD account , Can i use this money as colletral for option selling margin money. otherwise kindly guide me how proceed further.

  32. M Bhaskar REddy says:

    Hi Team,

    it will be very helpful to add option of targeted profit or loss stop loss instead of putting stop loss in the stock price.

    suppose if I buy infy futures @720 and I am expecting 5000 as profit.
    usually we have to put some top loss sell or some thing like that.
    But instead if i have a option of selecting profit target and stop loss target it will be very easy and even very much helpfull.

    say I am ok with 5000 profit or 2000 loss, after buying the infy futures @720 , I just have to enter 5k as profit stop and 2k as loss stop.

    what will happen in normal situation, Greed makes us to think of more profits and most of them end up with losses.

    If i have a option to set my profit limit and loss limit while taking any position, it will be very helpful to not to go Greed and Fear and end up with very well calculated measure.

    Hope this can be implemented successfully.

  33. Jai says:

    Dear sir,

    I want to write one call and one put for bank nifty weekly expiry at the same time in kite with my mobile, ie: suppos today is Wednesday and I want to write one call and one put today on exactly at 9:15am when market just open, which order type I should use or how can I do it please guide.

    And my another query is if I want to keep only one combine stop loss for both my position
    Ie: I have written one call at Rs. 40 and one put at Rs. 60, so total premium I can receive is 100 points, now if total value of both options goes higher then 100, it will be loss for me so I want to keep a stop loss at 200 for both my positions means if the total value of both options ever hits 200, it will be automatically squared off my poth positions.

    Please guide how can I do this.

  34. Mandar says:

    Hi,
    I was trying to set up a credit put spread in BankNifty options. That’s when my buy put option was rejected with the error message “RMS:Rule: Option Strike price based on Ltp percentage for entity account-ID across exchange across segment across product”. I got the explanation from zerodha support and understand how this is a measure to contain total exposure of zerodha in BankNifty contract.
    However, i feel, Zerodha should take look at this policy. Modification i suggest, is to allow traders to be net neutral i.e. if i write 1 banknifty options contract, i should be allowed to buy 1 banknifty options contract. this way, Zerodha is not adding to its exposure with NSE. Lack of ability to buy nifty option to pair off with a short option position, is forcing me to not execute these spread positions. @Nithin – pl take a look at this and provide your views on how zerodha can enable traders continue with their trading strategies

    • Faisal says:

      Mandar, we understand that you should be allowed to buy options in case you are taking covered strategies. However, this is not possible with our OMS as the buy order cannot be matched with the existing position and allow it.
      We are exploring ways to resolve this problem.

      • Mandar says:

        thanks Faisal. pl explore and let me know about it. My only option is to open a brokerage account with your competition. I will hate to do it as i am happy customer of Zerodha for a number of years. but wont have a choice if this is not resolved as i am planning to explore spread option trading as a serious trading strategy for my portfolio.

        • Faisal says:

          Mandar, we are forced to reduce the range of strikes you can buy as we get closer to expiry. So I’d recommend you track the margin calculator page where we display the allowed range(You have a better probability of buying a farther strike right after expiry day)

          • Mandar says:

            I understand. but i am looking to write spreads on weekly banknifty options. e.g. even on Friday (today – 04-Jan-2019), i cannot write options that are 300 points away from closing price on 3-Jan-2019. 🙁

  35. Mohit Vishal says:

    How many maximum lot of options I am allowed to buy in Zerodha in a single order?

    • Zerodha Social says:

      Hey Mohit,
      You can find the maximum trade able lots in a single order here under Freeze quantity.
      This is assuming you have the required margins to take the position.

  36. vijayan says:

    If I write a call option and as long as the losses are less than the span margin the day I wrote it, I don’t have to pump in more money right ?And what if it is a long call spread where my losses in call written is offsetted by the long option I bought.How is a margin call works do I get any notification on the terminal or a phone call?

  37. Pradeep says:

    Why is the capital requirement is so high in risk defined option selling strategy?
    don’t you think it should be max risk or margin, whichever is lower?

    • Faisal says:

      Exchange mandates that you maintain SPAN + Exposure margin. While you get SPAN benefit for a risk contained portfolio, the exposure margin is fixed.

  38. Virender says:

    Do you allow deep otm index option selling aspecally in bank nifty weekly I came to know from trading qn that order gets rejected for deep otm option

    • Matti says:

      Hi Virender, every broker is allowed to only have positions, across his clients, up to 15% of the market-wide position limit. In order to stay within this limit, we’ve had to impose some limits on permissible strikes. This range is always visible here. We’re working on a fix for this that should be live soon.

  39. Ranjith says:

    For almost all stocks for writing an option is similar regardless off lot size but why AdaniEnt options required more than 250000, whether it is rquired only now(Aug- 2018) or for every expiry in every month

  40. Raj says:

    Sir
    1) If I write a call or put option, can I exit it immediately (just like in the case of buying options).
    2) If I write say Nifty 11000 @ Rs.300, and suppose it becomes Rs.320 after 2 days: what is the impact ? Whats i want to ask is – I can make a profit only if its less than Rs.300…am I right Sir.

  41. Yogesh says:

    Hello sir,

    I am trying to find options for MCX (Multi Commodity Exchange) but I am not able to find it when I try to search it in Kite watchlist.
    Can you please help with this?

    Regards,
    Yogesh

  42. Kishor Kumar says:

    Dear Sir
    if nifty option written suppose Qty 1500 at strike price 10500 and expires at in the money at 10450 how much taxes will be levied

  43. Achin says:

    Hello Sir,
    If I write an option and it the results is in my favor and I am getting the complete premium amount.
    Is it mandatory to Buy the option to complete the trade OR can I just leave it and still get the profit (Premium amount).
    Thanks

  44. BIBIN JACOB says:

    how much margin for selling option in expiry days

  45. ASIT KUMAR NAYAK says:

    Good

  46. Kranti says:

    if you will not buy it till 3:20 pm, zerodha will buy it on your behalf for wherever the price at that time (usually 5/10 paisa ), if you are sure it will expire OTM, then no need to worry about buying

  47. Mayank tyagi says:

    Sir,
    I love zerodha for limitless experience. Plz tell me if i write an Nifty Bank expiry day option for OTM strike price @₹10 and it goes 0 at the end. Then what will happen. What i have to do? Do i have to buy it myself or it will b bought automatically at zero. Plz mail me this answer too if possible.

  48. NIKHIL KHANNA says:

    Bank nifty trading 24366 on 3/18/2018.

    1 Buy call for 25000 @ pre=42
    Question 1. if it goes above 42 on 3/19/2018 , for ex 50 .then profit =50-42=8*40=320, can i book profit on 3/19/2018.? or wait till expiry on 3/22/2018?
    2 Sell call for 25000 @ pre=42
    Question 2. if it goes below 42 on 3/19/2018 , for ex 36 .then profit =42-36=6*40=240, can i book profit on 3/19/2018.? or wait till expiry on 3/22/2018?

  49. manu says:

    Sir
    i have bear a great loss on 25 oct when govt has pour money in sbi as I have shorted due to bad results and NPA . I have also put a stop loss but it opened with a gap so i suffered huge loss do you have any advice how to stop such loss as this loss has dented my trading account badly.

  50. S R Singh says:

    Dear Sir
    I have a query. assume only one OI of Asian paint i.e” A” write a call option at strike price 1100 @30,and “B” buy it at strike price 1100 @ 30. At expiry day, Asian paint moves down to 1090. The price of call option at strike price 1100 is zero and “B” is not selling his option in order to avoid brokarage and other taxes, then how “A” will close his position by excersing a BUY option in order to close his short position.

  51. Sinivas says:

    How much you charge in case of partial profit booking…. example – I short (2 lots ) nifty 9400 PE@30 rupees whereas on expiry it settleted at 13 rupees.

    So, here would you charge anything on 13 which was not realised???

    Thanks
    Srinivas…

  52. Nimit M Shah says:

    Hii Nikhil
    Greetings

    Please Clear my Doubt

    If i am writing options say
    Future trading at 200 Lot 5000
    Short call 210 @ 5 rs
    Short put 190 @7 rs
    on Expiry it ends at 205
    do I get to keep full written premium???? ie (5+7) x 5000= 60000

  53. Manish Mehta says:

    Hello,

    Lets say I have Rs. 1 lac worth of stocks in my account which I can use as margin for writing options. To prevent actual liquidation of stocks, I will also keep Rs. 10,000 in cash in my account. Now, only when the losses from my F&O trade exceeds Rs. 10,000 will the stocks be sold. Is this correct ?

    In that case, I should keep a buffer of around 10 to 20% of my stock holding value in cash in my account to prevent liquidation of my stocks in case of small loss on margin.

    Please confirm.

    Thanks.

  54. prakash says:

    Sir,

    My doubt is if i am selling LIC housing finance strike price of 600 call at 6.20 rupees of lot size is 1100 ( i need of Span Rs. 53,240+ Exposure margin 31,419= 84659 as per zerodha’s margin calculator) and buy back at 3.20 rupees then How much i will get ????
    Second question if i buy back the same at 9.20 rupees then what will i get finally ( what happens span, exposure margins…..Please please i expect your reply…………….

  55. k.surendra kumar says:

    dear sir
    If i hold the underlying stock and write call and put options do i still require to pay margins or i can give the stock in my account as margin.

  56. muthu mariappan says:

    Nithin, let’s say if i write a option with a strike price and i forgot to square off on expiry and the my strike price is OTM. Still the writing premium will be given to me rite?
    Thanks

  57. Karan says:

    Sir….
    If I am selling the call option and put a stoploss then what margin I required?

  58. Raghu says:

    Hi Nithin,

    I have one Quick question.

    If I sell One lot Nifty 18Jan 10700 Call is @ 60.00 on Jan 2nd And if Nifty crossed above 10700 on Jan 10th 2018.
    What happens to my Contract?

    Whether a one Futures lot will be assigned to Trading account or it will wait till the expiry date to calculate Porfit and Loss.

    Best Regards,
    Raghu

  59. Shardendu Dubey says:

    Hello Sir Can I Keep My Long And Short Postition Till Expiry.
    If Yes How Can I Do That On Zerodha?
    I mean my broker has just three options:MIS,CO,NORMAL(T+5),which means i have to square off my position on the 6th day.

  60. kranti says:

    I have one query regarding infy buyback, sorry if it is not the right place to ask

    I have infy shares worth 2.02 Lakh Rupees (as on record date i.e. 1 Nov) , someone said i fall under HNI since the amount is greater then 2 Lakh, my query is… if i make it below two lakh by selling 3-4 shares well before tendering it e.g. tomorrow, ..in this case would i fall under retail..?

    OR NOW I CANT BE UNDER RETAIL SINCE AS ON RECORD DATE I HAD MORE THEN 2 LAKH RUPEES OF SHARES..?

  61. Prakul says:

    Dear Sir,
    (1) I called to ZERODHA for trading option-> I need to sell first SBIN NOV 350CE & hold it for 3-4 days. But, they didn’t taken my order.
    (2) Is it possible to hold stock option during first selling & hold it for 5-6 days before expiry ;then buying at low???
    How much margin required for selling option & hold it till expiry?
    (3) If I have total margin as per “Zerodha F&O margin calculator”, in my account for shorting stock option & hold it till expiry; So, Can I place this order directly from my mobile Kite app? Or is there require any special approvel from Zerodha team for holding stock options?

    Please clarify sir….Thanks in advance!

    • Zerodha Social says:

      Prakul, yes you can buy and hold an option till expiry as long as you have the total margin in your account. But since stock options are illiquid you can use market orders, you will have to use limit orders.

  62. akash goyel says:

    Hi Sir,
    I am asking this query as on 29 Oct 2017. At strike of 390 Yesbank CE premium is 28 and at strike price of 340 Yes Bank PE premium is 35. If i short these both options I will be in a profit of 13 irrespective of direction of stock. I doubt whether I am thinking on correct lines. Whether I need to buy options at expiry or it will be worthless?
    Please explain.

    • Zerodha Social says:

      If yes bank closes between 340 and 390 then you make the entire premium on both the short option positions. If yes bank closes above 390 or closes below 340 then you are certain to make the entire premium on one of the option positions but the profit/loss of the other option position will be decided by where yes bank spot closes, which will decide the intrinsic value of the option. It would be best if you explore this module on F&O on Varsity – zerodha.com/varsity

  63. Karuthiappan says:

    I sold 10100PE 26 Oct expiry on 24.10.2017. On 26.10.17, position was closed by the exchange. But the margin for shorting (Rs.54575) the position is not released till writing this thread. Any expert kindly clarify.

  64. kranti says:

    Can the nifty short on the day of expiry be done as “NRML” or do we need to do with only MIS..?

    • Zerodha Social says:

      Yes, you can but the full margin will be blocked.

      • kranti says:

        Thanks for the reply, two more query –:

        1.)I am aware that MIS is for intranet but what will be the difference as compare with NRML in terms of margin, do you mean in MIS, full margin will not get blocked.

        2.)where can i see margin requirement when i want to short weekly bank nifty, i think Zerodha margin calculator doesn’t give this facility..

        • Zerodha Social says:

          1) You just need 40% of normal margins to take MIS positions.
          2) You can check out all the margin requirements here. The margin requirements for weekly options are similar to the near month option contract.

  65. preetam says:

    Hi sir can we short nifty and bank nifty etf positionally?

  66. sahil gupta says:

    SIR , How to calculate 2 standard deviation of nifty

  67. Joyal says:

    Dear Sir,
    Suppose Spot Market of Nifty is Quoting at 9788.

    Now say if sell Deep ITM CALL Option of strike 8700 by paying margin and collected premium of Rs 1090 per unit.

    At Expiry suppose the Nifty Spot quotes at 9300 and the end of the trading session.

    Now here I want to know that in this Scenario what will be my P&L i.e I am making a Profit or loss, because I believe that at the expiry premium is left with Intrinsic value as Time value becomes zero.

    • Matti says:

      You will make a loss of 600 points times the lot size. Also, selling deep ITM options is not really a good idea as the probability of the option to remain ITM is high, which means the chances of you losing money is high.

    • kranti says:

      Never sell ITM option, always sell OTM since after expiry all OTM option premium becomes zero
      OTM (Out of the money), all options which have no intrinsic value and only time value, so time value becomes zero as well after expiry

  68. Pawan singh says:

    Sir what happens if seller sells in the money options on expiry day just before 10 seconds does this premium is profit of seller because buyer is not able to sell option

    • Only if seller sells an ITM option, which after market closing becomes OTM will the client make profit. Suggest you to go through the F&O module here: https://zerodha.com/varsity/

      • Prakul Joshi says:

        Dear Sir,
        I have 2 questions:
        (1) Can I sell first INFY17OCT1000CE at 9.60 & after 7-8 days bought at 5.10.
        Is it possible to hold stock option ( first sell & then buy) for 10-12 days ( except expiry)?

          • Prakul Joshi says:

            Dear Sir,
            I called to ZERODHA for trading option-> I need to sell first SBIN NOV 350CE & hold it for 3-4 days. But, they didn’t taken my order.
            Is it possible to hold stock option during first selling & hold it for 5-6 days before expiry ;then buying at low???
            How much margin required for selling option & hold it till expiry?

  69. Jayesh Patel says:

    HI Nitin,

    I am new to option Trading. I’ve below question in my mind, it will really help me if you can answer.

    I had purchased 4 lots of 1500 ( Total =9000) TATAMOTORS SEP 440 CE @ 1.38 and sold @2.90 while stock was performing really well.
    Expiry is on 28 Sept.
    It is showing the profit of 13679 Rs.

    Now, on 28th Sept, if TATAMOTORS Stock price is either below or above 440Rs. In any case, Do I have to bear any losses?

  70. Dhrutika Patel says:

    Nithin,

    Now as buyer has choice not to exercise option on expiry.
    If I sell Banknifty 25000 PE at 25 and expiry is 24975. Buyer will not exercise because STT value is 30 points. So as an option seller, will I get my 25 points which I have written or I still need to pay 25 points to exchange to settle by sell position?

    Regards,
    Dhrutika

  71. sanjeev says:

    my question is simple.
    my other dp with bob trade allow me to sell bank nifty on on the day on 31 agu expiry and 7 sep expiry. and i made profit of Rs 9000 on the 2 expiry day and paid the brokerage around 6000,. but today on 14 sept expity day when i wanted to sell bank nifty 24600 put. they didnt allow me and error was that margin limit exceeded. how it is possible. when i traded on above two expiry my balance was 26000 and 35000 repectively. and i traded 20 lot and 14 lots on these day.

    how this is possible. please advise, as they are giving me proper answer, and keep saying we will check.

    • sanjeev says:

      on more thing.. is there any option in bank nifty where we can sell intraday and no margin as such required (itm otm atm) etc

    • Venu says:

      It’d be a little difficult to explain why another broker didn’t allow you to take a position, my guess is that you wouldn’t have sufficient margins in your account to take the position you were trying to take? Did you reduce the quantities and try to place the order? Also, what was the rejection reason for the order you placed? That’ll help you ascertain the reason your order did not go through.

  72. kranti says:

    Hi Nithin,

    what will happen if some one shorting a call or put for say (40 rs as a premium) but could not buy it, and after the expiry of the contract, premium becomes 1, 2 or even 0 rs

    in this case, would the person be on profit or lose (how the settlement be done)..?

    also how much stt will be..? i think 0.05% of 40, that’s it correct..?

    • If you have shorted an option, you have already paid STT. No STT on buy side. Your selling price – buying is your profit.

      • kranti says:

        Thanks much for all you guidance and support
        one query on equity, is that possible to buy any stock in NSE and sell the same on BSE or vice versa (intranet or delivery)..?

        Asking because if you see today TCS closing price in NSE was 2,484.35 and same was 2,477.65 in BSE, (difference of ~7 Rs)
        If ans to my above question is yes, isn’t any one can take advantage of this 7 rs an make money..?

      • kranti says:

        Hey Nitin — Lets say on the last Thursday or may be a day back,, i sort sell any nifty OOM CE with primium 10 rs and could not buy it back for some reason so if premium became zero (since it was oom), what will happen if thr wont be any buyer..?

        what will be my profit ..?

  73. Ratheesh Kesavan says:

    Hello Nithin,

    I am new to options trading. I read this blog around 5 times, but still I am in a confused state 🙂 However, I just wanna confirm the below for example,

    I bought 1 lot (200 numbers) of Dr. Reddys – Sep 28 2300 CE at the premium rate of 15 INR few days before. Today I sold the entire lot for 40 INR premium as the scrip was booming like a rocket. I got some money as profit in my funds. So my query is, in case if Dr. Reddys reach more than 2300 in the expiry date (sep 28), am I in trouble of any losses?

    As per your blog what I understand was – if the scrip closed on 2400 on September 28, I need to pay 100(IV)*200 – 20000 INR back ? Please clarify me 🙂

  74. Aryan says:

    Nitin, can I short September expiring option in august and buy it back at any time before 28 sept?

  75. Dutta says:

    Sir,
    One more question which clear my doubt to great extent.

    Suppose i want to buy banknifty of 31aug future (78000 approx as per margin calculator) and 2 lots of put @100 *80=8000.
    Then i how much amount i must have in account as per your calculation .
    Someone said option amount will be hedged so further amount no need to infuse for 8000.

    Kindly clear my doubt.

  76. Dutta says:

    Sir,
    Kindly help me to understand towards option future margin.

    Suppose i took banknifty future one lot and buy put options of near strike of future. Now future is losing money and option option is making money. Will margin be adjusted mtm from option or vice versa?

    Writing an option and buying an option of same script or nifty and either side is making money will margin be adjusted?

    Is margin requirement is different from broker to broker? I enquired angel required 60000 for banknifty future whereas zerodha needs around 78000.

    Please clear my doubts.

    • No, profit from puts won’t get adjusted to futures loss. As future profit/losses are mtm’d daily and not options. Same when it comes to writing an option. Margin requirement is same across brokers.

  77. Raghavendra says:

    I have one query, consider I want to play safe and will short at 2.50 to 2.55pm on day of expiry with far away strike price with premium of 40 or 50p and 10000 quantity so in that case what is the minimum amount of investment require. And after selling if I let it expire which anyway becomes OTM then will I get to earn full 50p premium as profit?

  78. Manju says:

    Nithin,

    CALL Options are working superb. I understood the bull speard and after testing few attempts with Banknifty I Gained complete knowledge of CALL and Bull Spread. I also Understand BUYING PUT Option first and Selling later.

    One Last question, which is still bugging me not sure If I understood it correctly.

    Monday –> I Shorted [ SELL –> BankNifty 24700 PE @ 230 ]
    Tomorrow is Expiry of july [ I still hold the position but current premium is 60rs ]
    if I Buy the PUT Option tomorrow ( close my short position ) let’s say @ 10RS,

    What Will be my profit for 1 Lot(40 Qty) !!
    SELL BankNifty 24700PE @ 230 PUT
    BUY BankNifty 24700 PE @ 10 PUT ( close the position)

    Is it simply 230 – 10 = 220 *40 = 8800

    what happens If this position expires worthless …

    • Yes 8800. If it expires worthless it is 230-0= 230*40

      • Manju says:

        Thank You, Nithin,
        For staying up this late and answering my queries. Like I said before courses helping me tremendously
        and my trades are getting bigger and wider every day. Especially i never traded in index in last 4 yrs, but for last 6 months it has been excellent ride ever since , working with Zerodha.
        Thanks again for all that you do.

  79. Aliya says:

    And in the above question as Praveen had asked when u replied ” you will get to keep the entire 7 points” i think this 7 points profit means 7×75= 525 profit on expiry when the value of option becomes 0. Am i right?

  80. Aliya says:

    Sir i am a new option trader. I have a question. While trading option we always see there are three month cycle. Suppose for Nifty Option i chose to short the August Option. I think that Nifty cant cross 11000 till 31st August. So i wrote a Nifty AUG 11000 CE option. Now the major question is does this option expire in this month or it will go till August.

    I mean if it didnt expire in July then will it be in my demat account till August Expiry?

  81. Praveen Kumar says:

    Dear Nithin i want to know how the settlement price for a OTM option is calculated on expiry. I had shorted a NIFTY 27 JULY 9800 PE today i.e Tuesday @7. Spot Nifty is at 9970. And as only 2 more days are there for expiry so i think NIFTY wont fall 170 points in just two days to become 9800. So in this case what will happen to the 27JULY 9800 PE price on expiry. Suppose on expiry Spot NIFTY closes at 9900. Still it is way far 100 points from 9800. Will the 9800 PE price becomes 0 as it is OTM???

  82. Praveen Kumar says:

    Dear Nitin
    I am a regular day trader but i have never short options. Recently i accumulated 1 lac capital to start option writing. Before indulging in option writing i have a doubt.
    Just i was checking the Zerodha Span calculator and there i found that if i short Nifty 10100 CE i am going to receive a premium of 300. Now as a day trader let take this scenario

    On market opening let say i short Nifty 10100 CE at 3.5 Rs and got a premium of 300. Now lets say after 3 hours Nifty 10100 CE is trading at 2.5 and i exit the position to book profit.

    In this case my profit should be 75 x (3.5-2.5)= 75Rs.

    But what will happen to the premium of 300 that i had received. Do i need to pay back the premium once i exit my short position?
    Will that premium be automatically debited from my trading account?

    • When you short you received premium of Rs 300, when you bought back you paid a premium of Rs 225. So remaining Rs 75 what was left is your profit.
      Yes all premiums will instantly get debited from your trading account.
      Suggest you to go through the options module here before starting: http://zerodha.com/varsity/

  83. sujay says:

    Hi Nitin

    My basic question for option writing is what if there are 100 people who are willing to write an option but there are only 95 potential buyers then what happens for those 5 writers.

  84. Rao says:

    Hi. sir;
    I have 2 queries…
    1) What are the pros & cons of Selling (writing) Deep In The Money (ITM) Call and Put Bank Nifty weekly expiry options.? The premium received is more in ITM compared to OTM.
    2) Can I exercise / square off ITM options before expiry such as after 3, 4 days after selling if it is in profit.
    Thanks in advance.

  85. Aniket Kale says:

    When I try to buy BANKNIFTY06JUL1723200PE @1.8 my order gets rejected giving reason “Option strike price based on LTP percentage for entity account across exchange across segment across product”.
    What does that mean and why does it show this reason ?

  86. Angad says:

    Hello Nithin,

    One query, you might have answered but still asking.

    Bank Nifty Cost : 23260

    Sell Bank Nifty 23000 Put 13th Jul 2017 – Cost 93 (x 40) = 3720/-

    Now if at the expiry, Bank Nifty goes up, Put value comes down. suppose that cost come down to 10. Then it means (93-10 = 83) then 83 x 40 = 3320/-

    This means, you will get profit of 3320/- Is this right ??

    How this will happen with margins?
    I mean, currently I have having in my Zerodha acc, 4,000/- balance.
    When I tried to place the order, it got rejected saying insufficient balance : 24,000/-
    This means , for doing the above trade, you require 28,000/- actual in your account.
    Is than means that you are buying the same trade with cost of 28,000/-??
    and if I goes in profit, do I get 3,320 + 28,000/- back??

    Note : I have not included any charges purposefully.

  87. Jagadeesh says:

    I have a serious doubt, I am shorting a call for Rs 30 1 lot ex:nifty 9700 call with available margin in my account ex:Rs 40000.
    next day on market opening nifty went to 11000, what will be the worst case scenario, whether i have to pay remaining amount 50000 approx, what if i do not pay, whether it will be settled within the margin available or i am legally required to pay that amount, just worst case i am asking, as selling options is unlimited loss and paying in crores will not be possible for a common man, is margin is the minimum amount that is enough to exercise my over valued option?

    • Yes, option writing theoretically can have unlimited loss. And yes, if your account goes into debit, you are supposed to make good of losses. It is legally binding.

  88. kushagra deep says:

    If I have sold a naked call option, do I have to square it off to book profit/loss or can I wait for it to expire and keep the proceeds of selling the call option as my profit

  89. Vijay says:

    First of all,i must thank Mr.Nithin and the entire team at Zerodha for always taking the time out and helping out the retail investors and it’s a big deal for us because we definitely don’t have the resources that institutions,hedge funds have.

    Now coming to the question and correct me if I’m wrong but whatever i have read about Options so far,the premise is ‘Call Writers’ are bears or bearish who expect prices not to move beyond the strike price at which they are active(writing) and ‘Put Writers’ are bulls or bullish who expect that a particular strike price where they are active will hold in case the markets slide a bit.

    My question is are all ‘Call Writers’ bears irrespective of whether it’s ITM,ATM or OTM and similarly are all ‘Put Writers’ bulls,irrespective of at what levels they trade at (ITM,ATM or OTM)?

    Thanks and good wishes to the entire team of Zerodha

  90. shabaz says:

    sir,
    thanks for you reply,
    but i want to ask a question that what is the right time to short the calls or puts in a month.
    is it right to short the calls/puts in starting of a month or the right time is to short in the expiry week.
    what is the right time to short call/puts?

  91. ABINAYA says:

    sir i am still not clear why one has to pay margin while selling a put option when he owns the stock? what will the margin be used for….will it be used for buying the stok in case option is exercised?

    • If you want to take margin against the stock you hold in your demat, you will have to first pledge them and then use the margin to write options. Stocks in demat won’t be automatically considered as margins, exchanges charge a short margin penalty. Check this post on pledging.

  92. shabaz says:

    sir,
    i have to ask one thing that suppose that nifty is on 9200 and i have shorten 9300 call and till the expiry day, i holded that call, then should it squareoff itself on the zero value, or we have to square off it before it becomes zero..
    please answer sir

  93. neelam says:

    Hi sir,
    i write call of nifty 9200 @85, if nifty trde will be below 9200 of expiry date. then my write call is Zero. can i leave this or can i buy it in 5 to 10 paisa compulsorily .

  94. Shivangi says:

    Sir, can you please let me know that is there enough liquidity in shorting option of Nifty , i mean is it easy to exit midway also if the position is turning to be loss making.

  95. Nitin Desale says:

    Sir, can i sell (short sell ) weekly bank nifty contracts..? And if Yes then How to to calculate margin required for that for intrady ..? Because in margin calculator there is only monthly expiry contracts available of bank nifty

  96. vikas says:

    hi,

    Suppose i take both option call and put together. so is it possible.
    let example today reliance CMP is 1400, i am expecting same to goes upto 1500 and then it will goes down.
    so is it possible used first call option for profit and den used put option at time when same is down, so finish with call option first at higher price and then used put option when reliance is down.

  97. Vijay Kumar says:

    Hi,
    I have bought Nifty call option of march 9300 at 15 Rs. today it’s price is 2.70 Rs., if i wait for expiry day of march 30th then what should be? will it increase price from 2.70 to 7-10 Rs, because on expiry date movement can be seen, please advise… what i do..

    Regards,

    Vijay.

  98. Ganesh says:

    Hello,

    If i go short on 9300CE of NIFTY expiring on 30th march at rs.14, then total RMS reqd. is rs. 42772.31,
    suppose i had exactly rs.43000 in my trading account and after the execution of 1 lot of the above short, can i do swing trading (long) with only the remaining rs.227.69 or can i use my entire 43000rs. for my normal trading?

  99. Vishal says:

    Hi Nithin,

    Pl help me understand following:
    1. what is Span and Exposure margin?
    2. How margin calculator arrives at this value?

    Thanks

    • 1. SPAN is minimum margin that exchange requires a broker to block from the client for an F&O portfolio. Exposure is what exchange charges over and above the SPAN, as a margin of safety.
      2. This is determined by the exchange itself using SPAN (model built by CME). Complex mathematical calculations go into this, check this link on NSE

  100. Sumit says:

    I am a zerodha member. Thank you for such an informative article. However, option writing is not that much understood by me. I will understand, but will take time. So I have a straight question for now.

    Today is 18th Mar’ 2016. Nifty closed at 9160.05 after touching an all time high of 9216.40 on friday (17th march).

    1. Where do I Sell a put to be profitable? 8800 or 9300?

    Current price for 8800 Put is 10.75 and 9300 Put is 20.00.

    According to Zerodha SPAN/MARGIN calculator 9300 put will get me 10860 as premium receivable and 8800 Put will get me Rs. 506. (As of today, 18th March).

    I am looking to sell one or both of the Puts.

    2. So where do I have to pay up (back) to the market? If 9300 strike price is reached I will have to pay back the premium? In that case selling 8800 put will actually outright make me loss than profit?

    3. Can I and If I, sell 9300 Put at Rs. 20 (current option price) and buy it back at say Rs. 15 price I will make 75×5= Rs. 375 profit, right? And come out of any future obligation too?

    4. In that case, will it be profitable selling a Put at beginning of the month or beginning of new series as the price usually falls and keeps falling as the expiry nears? (I am not discussing strike price here, say in an ideal position where I am able to choose a strike price which is not reached till expiry then option price will obviously keep falling due to “time value” factor, right?)

    5. When can I make profit on selling put without buying it back? That is keep all the premium received without buying back contract?

    I know things are not as easy as it looks to be. Just trying to find how hard it is….

    Thank You 🙂

    • 1. It depends on your view, if you think market will go up, then 9300 puts. If you think market won’t fall below 8800, then that one. The odds of winning on 8800 is much higher, but the rewards are smaller too.
      2. ah, this question doesn’t make sense. Suggest you to read the F&O module here: http://zerodha.com/varsity/. Btw, if 9300 is reached, 9300 puts will have 0 value and so will 8800. You make the entire premium as profits.
      3. Yes
      4. Options have time value and intrinsic value. All things standing the way it is, time value reduces everyday. As an option writer you benefit and the buyer loses. No easy answr to this, read the module.
      5. Point2. If you write a put of any strike and if market closes on expiry at or above that price, u make the entire premium as profits .

      • Sumit says:

        Hey Nitin,

        You are wonderful 🙂 I thought my questions were too vague and you won’t answer but you did. Thank you for taking the time 🙂

        I am too cautious as an investor but I do want to take the risk as well so…. the above….

        With question (2.) I only wanted to understand when I get to keep the premium and when do I forfeit it. That was the all the exercise for all the questions that I asked.

        So scrip price being 9160.5 I wanted to know which strike price for selling a put would have kept me in profit. 8800 or 9300. (both put, selling).

        So as according to you:

        Taking 9160.5 as reference price and 9300 and 8800 as my selling price;

        1. I will be in loss if I sell 9300 put and the price remains below it.
        2. Will be in profit if price remains above 8800.

        More simply put: At Current price 9160.5, I am selling 9300 and 8800 put. Option expires below 9300, but above 8800. Which trade will make me profit (1.) 9300 or (2.) 8800. How? Calculations? (Can you please :))

        I am just trying to understand the concept here first. Will learn about choosing right strike price through actual trading.

        Also, how is the payable premium calculated? What is the formula?

        Thank You once again 🙂

      • Sumit says:

        I guess you don’t need to answer the above. I find it difficult to focus on words sometimes. The very first sentence of your reply answered my questions already.

        But if you could just for the sake, illustrate the results: At current price 9160.5, Selling 9300 and 8800 put. If price remains above 9300, both puts will end in profit, else 9300 put will give loss/partial profit, and 8800 put will remain profitable.

        Correct?

  101. RAJAT says:

    Dear Sir,
    I want to know about options selling. Here i am putting some question so plz help me by solving these questions.

    1. Suppose i short sell Bank Nifty 21000 call at 20 and that time spot price is 20850. If expiry day spot price is 20950 and premium is 0.05. So i am in loss or profit ?

    2. Can i buy back my short position at 0.05.

    3. What will happen if i forget to square off my short selling position in the expiry day.

    4. Suppose i short sell 21000 call and i am in loss and i want to hold my position till the expiry. So is it possible and if yes so how ?

    5. I short sell Bank Nifty 20800 call at 30 spot – 20720 and the expiry day Bank nifty close at 20900 and premium became 55. So am i in loss ? if yes so how much loss i have to bear.

    I want to answer just five question and i hope you will give proper response.

    • 1. If you short 21000 call and Banknifty closes below 21000, the entire Rs 20 u got for shorting is your profit.
      2. Yes, but you need not as well.
      3. It will expire at 0 as it is out of the money.
      4. If you short using product type NRML, you can hold on till expiry.
      5. If you have short 20800 call and it closes at 20900, that means your option is valued 100. You had short at 30, so you will be in loss of 70 ( 100-30).

      Suggest you to go through F&O module on Varsity.

  102. RAJAT says:

    Dear Sir,

    Plz tell me ” what would be brokerage charged if a options expire at 0.05 in expiry day.

  103. SIDDHARTHA DATTA says:

    Dear Nithin Sir,
    I am a new customer of zerodha. Do you have any stock suggestion box for intraday or positional call ?

  104. SIDDHARTHA DATTA says:

    Sir,
    Do you have any educational video to understand different technical & fundamental analysis ? Do you have any software to give buy-sell signal in Kite ?

  105. sriram says:

    sir,
    i would like to trade in currency dervivatives in usd inr options. i have 1L capital . with this 1L i would like to short call options of 3000+ lot . is it possible with this 1L amount?

  106. Varun says:

    Hi Sir,

    I paid big exercise brokerage for BankNifty index options. 100 lots (40 X 100 = 4000)
    I did not square off the position during expiry day. I thought my position was in ITM, so exchange will settle with exercise.

    I bought 21000 banknifty option put and spot price closed is 20070.30 during expiry day

    the exercise brokerage (STT) was charged above 1 lakh.

    It seems totally meaning less. sometime index closes very close to strike price like .5 point or 1 point less. If someone is not squaring of their position, to settle that .5 paise or 1 rupees, exchange charges big brokerage. This is totally ridiculous. i do not see any value for settling small exercised amount, they charge big exercise brokerage.

    i am helpless here. Is there any way to get back my exercise brokerage paid.

    Please help me on this.

    thanks

  107. VIKAS SHARMA says:

    I have one question on writing NIFTY option
    In 2009 , when Manmohan govt came back in power again, nifty rose 20%(From 3673 to 4384) in first 6 minutes of trading session. Few call buy option, rose beyond 1000%.

    Suppose Had I SOLD/WRITTEN call option, lets say 3700 CE, i would have made huge loss. Basically what i want to know, RMS team would have squared off my position????? And if yes then when. And what if loss occurred is more than the margin blocked. Is that possible?

    • Venu says:

      Yes, as stated in the module, a short option potentially carries unlimited risks. If the markets are extremely volatile, like it was that day, no RMS system can square off all positions. The margins that are blocked as per SPAN covers for the risk on 99% of the days. There’s still that 1% of risk that every broker carries, it’s a business risk. If the account results in a debit, you’ll have to bring in additional funds to make good the losses on your position.

  108. Joyal says:

    means shorting options is similar like futures

  109. Joyal says:

    SIR,
    IF I SELL (SHORT) CALL OPTION UNDER NRML PRODUCT CODE AND I WANT TO CARRY FORWARD MY POSITION TILL THE EXPIRY.

    I JUST WANT TO KNOW ON WHICH AMT MARK TO MARKET WILL HAPPEN ON DAILY BASIS I.E ON THE PREMIUM I HAVE RECEIVED OR ON THE MARGIN (INITIAL MARGIN BLOCKED AT THE TIME OF TAKING THE POSITION).

    • Venu says:

      You can carry forward the position provided you have sufficient margins. There’s no MTM for options. If the contract moves against you, the margins required to carry forward the position will increase. You’ll have to ensure you bring in sufficient margins to be able to carry forward, failing which position is liable to be squared off.

  110. Ankit says:

    Hi, I read another comment about margins somewhere but I’m not very clear.
    So my questions are –
    1. For margin requirement for FnO/currency/commodities, can 100% of the margin be given through stocks in demat (or pledged stocks)? Of course, the MTM has to be in cash I understand. If not, then what is the split between cash and stocks (or pledged stocks)? I understand there is a haircut associated with shares.
    2. For option writing, in case I write and option of Rs. 100 and end of day, the option value is 110, then for the remaining Rs. 10, will it be counted as MTM loss and I should deposit Rs. 10xlot size or will it be deducted from the margin itself?
    3. For option writing, how soon will the fund be available to me?
    4. For margin through shares – do you still have the policy of making pledge or will it remain in my demat and I will get margin for trading in FnO without having to pledge?

    Thanks.

    • Venu says:

      1. Yes, you can take positions with 100% margins in the form of collateral but interest will get charged on any shortfall in cash. The cash-collateral ratio for margins for overnight position should be 50:50. So if you take a position for Rs.1 lac with only collateral, interest will get charged on Rs.50,000/-
      2. When you write options, there’s no MTM. When the option moves against you, eod margins will increase. You’ll either have to bring in the margins (by way of cash or collateral), or the position is liable to be closed.
      3. Didn’t understand this question.
      4. You’ll have to pledge the shares.

      • Ankit says:

        Thanks for the quick reply.
        For Q3, I meant to ask – If I write an option (assuming enough shares+cash margin available), since option writing entails me getting the premium, how soon is this extra fund available for me to withdraw?

        Eg. I write an option with lot size 75 for Rs. 100. This requires SPAN + Exposure margin of Rs 50,000 (And I have 25k in cash and 25k in share collateral after hair cut). So the premium amt – Rs 7500 should be credited in my account right?
        How soon can I withdraw this? i.e T+0 or T+1 or only after I close the position or it expires out of the money?

  111. Prabhakar says:

    I sell(write) nifty option today & buy back in 3 days. How may days will it take to get back my margin money in to my account for next trade.

    • Venu says:

      Margins get release as soon as you close the position.

      • Vamsee says:

        When I try to sell NSE share(Eicher Motots) and planning to buy back later. It is not buying and says you dont have that share? Is it like, I can sell shares when I have them in my account?

        • If you want to do this, you have to use product type as MIS and not CNC. Check this https://kite.trade/docs/kite/ on order types and also all the videos.

          • Vamsee says:

            Dear Nithin,
            Let us assume, I just opened the trading account, for my first transaction can I place sell order(MIS) for an X company and by the end of the day can I buy back the same?

            If yes, I tried the above procedure and I got the message as not available to sell the X company.

            • When you open trading only, only F&O trading is opened. You will not be able to trade equity – either intraday or delivery. You can send us the demat account opening form, prefilled form available on q.zerodha.com

  112. Jayesh says:

    Hello Sir,
    Eg: If I short a Call at Rs 10 for 1 lot (750/- premium received )at strike price 8000 and on expiry it reaches at Rs 2 with 7900 as strike price . I do not square off the position . So will I get to keep the entire Premium amount of Rs 750 or will it be auto squared off at Rs. 2 on expiry ?

  113. jeeth says:

    Great article.

    And would like to clear my doubts.

    If i am call writing 10 lots(750) @ Rs.20 and if i am buying back the same 10 lots(750) @ Rs. 1 on the same strike price within the expiry 30 days then please explain & advise how much profit i will earn.

    Many thanks in advance

    • Venu says:

      Since you’ve sold at 20 and bought it at Re.1, you make a profit of Rs.19. Total profit is Rs.19*750 = 14250 without considering taxes.

      • Jeeth says:

        Thanks for your details….

        One more doubt is that if i am invested with Rs. 1,20,000. If i am call writing 10 lots(750) @ Rs.20 and if it moved to Rs. 40 on the same strike price or if it goes beyond Rs. 40 then what will be the scenario? Also please explain how much it will be deducted from my total amount of Rs. 1,20,000/-

        Also please provide your suggestion for Nifty call writing Jan 2017 series and at what strike price we can write call option(including no. of lots) to my value of Rs. 1,20,000/-.

        I am a beginner so please don’t mistake me for these queries….

        • Venu says:

          We’re against giving suggestions/recommendations.
          On the query you’ve asked, every time you short an option, margins get blocked. When the contract price goes against you, your MTM losses increase and your margin erodes. This is when you’ll have to bring in additional margins or square off your positions. In the above example, since the contract has caused a loss of Rs.20, your MTM loss would be Rs 750*20 = Rs.15,000. This 15,000 gets reduced from your actual balance of Rs.1,20,000 and you’d be left with 1,05,000. You would have to bring in additional fund to carry forward your position or square off a few lots. Writing options has been explained in detail on Zerodha Varsity here: http://zerodha.com/varsity/chapter/sellingwriting-a-call-option/

          • Jeeth says:

            Dear Venu,

            Thanks for your details….

            Rgds,
            Jeeth

          • Jeeth says:

            Dear Venu,

            Please note that my call writing option has been rejected by my brokerage when i made the writing for the value of Rs. 11,250 by selling 10 lots @Rs.15 in nifty jan 2017 series. But your explanation is different from that of happened.

            They are telling that to my investment value of Rs. 1,20,000/- i can write only 3 lots. Please explain?

            If so by iam writing only 3 lots then how much profit i could earn? Pls explain?

            Warm Regards,
            Jeeth

  114. NNVPratap says:

    Hi, have a few queries, please support.
    1. If we write an option, should we square off that position before expiry? If that is the case and we forget to do so, any penalty is imposed?
    2. When is the premium for option shorting credited to the trading account? On the day of expiry or immediately?
    3. If due to market movement, there is an increased requirement for margin, how will the trader be communicated about that and how much time do we have to add funds for the new requirement?

    • 1. Not required to square off, on expiry all options are settled to the underlying price and any p&L is credited/debited. If you have short options, no additional STT (penalty) to be worried of.
      2. Immediately (T+1 day)
      3. Trader has to keep a track of this, it is best to have all MTM losses in case it is big (more than 10% of margin) transferred into trading account before market closing.

      • NNVPratap says:

        Thanks Nithin for your prompt reply. Regarding the 3rd point, can you please elaborate on the MTM losses and how it relates to SPAN and exposure margin? if in case, we do not have access to market updates, does Zerodha call/email me regd the updated requirement for margin if falling short of existing funds?

        • Venu says:

          No, there’s no call/email done, instead we’ll be sending an SMS alerting you on the shortfalls in margin. But as Nithin’s said, the duty of ensuring sufficient margins are kept in the account always vests on the trader. The trading platforms gives you a live update on the margin requirements for the positions you’ve held.

  115. Shrikant Sharma says:

    Am a newbie in trading. Have read the First options module in Varsity.I want a clarification on the most basic issue, Kindly do not laugh if this question may seem foolish to you.
    If I am bullish on an underlying asset I can BUY a call option and if I am bearish on it, I can SELL/WRITE a call option. So if both the perspectives of an underlying asset are being satisfied in a single instrument [The call option], what is the need for PUT option ? Are Call buy and Put sell AND Call sell and Put buy not equivalent to each other ?
    Thanks…

    • 🙂 the payoff graph for options buying and option writing is completely different. Yes if you are bearish you can write calls, but when you write calls, the profits are limited a and the losses unlimited. You need to put in a margin to take a position, unless buying where you need to bring in only premium. Suggest you to read through the futures and options module here: http://zerodha.com/varsity/

  116. Hiren Shah says:

    Hello Nitin,

    I want to trade covered strategy in Nifty selling like: Nifty spot price on 24rd Nov is 8006 and i am writing 7800 Put and 8200 Call…at expiry nifty is at say 8000 so i will get full premium for both side…in option chart we can see that there can be seen strong base at PUT and CALL OTM side…can i use that data to trade both side..??

  117. sahil gupta says:

    sir if i write sbi 250 call at 5 rs and if it rises to 6 rs how much margin more required and at what price broker ask me to increase margin and at what price broker automatically square off my position.

    • Margin to write SBI calls will be around 80 k to 90 k. lot size is 3000, so rs 1 loss will cause you a MTM loss of Rs 3000. Usually when you lose 10 to 20% of margin required is when broker might start squaring off your position. So say when you start making notional loss of upwards of Rs 9000 (when call goes to 8 and above).

  118. Kashyap says:

    Hi Sir,
    The post is awesome.
    I am going to write ATM call + put at the start of month and hold till expiry. The premium ofcaurse will be melted to some extent and i am able to get some profits say near about 6-10%.

    Now let say i have written call+put at total of 300 and suppose if it goes above 300 then
    Do i have to pay more premium?
    If yes then how much it will be?
    Do my broker will square off the position without asking?
    If the total goes down lets say 200 then what about the extra margin amount that i have paid?

    • 1. If the combined premium goes up over 300, that means you have started making losses. If the lot size is 100, if the combo goes to 350, it means you are making losses of Rs 5000. So yes, margin goes up when the premium goes up. It this goes up significantly more than 300, yeah broker can square off if you don’t have enough margin to cover.

      2. When it goes lower, margin blocked will reduce, you will have more money let to trade/withdraw.

  119. sahil gupta says:

    Dear Nithin sir, suppose i sell nifty 8800 call at 50 rs , if nifty crossess 8800 , to hedge my position in future how many number of future lots to be buy to hedge my postion and what is the formula for this….

  120. Asit Maurya says:

    Hello Nithin,
    I am Asit Maurya.I am a trader in F&O segment.I want to know something.Suppose I have 5 crore rupees and I want to invest it and get 20% (1 crore) everyday so , where should I Invest to so that my order gets executed easily as it will be a huge order it will take too much time to be executed and I don’t want it to be overbought so there should be a good liquidity Please Help.is there any way in zerodha to invest in Foreign Market F&O.
    Thank You

  121. BHAWANA JAIN (RB3143) says:

    if I short nifty call@oct9500 with say 30 rs 1 lot with margin paid say 50000.
    In case market goes up and call price goes to 230.
    How margin requirement/MTM is computed.

  122. Nikunj says:

    Hello sir,
    I’m new to option trading and wanted to know that what is the process to exercise option contract for option buyer at the day of expiry for ITM position.

  123. Nizam says:

    Hi Nithin,

    In continuation to my earlier question, how to identify whether call or put writing has taken place on a perticular strike price .Also, how to identify call or put buying has taken place in considerable amount on a perticular strike price. Is there any indicator something to measure this?

    Thanks.

    • Nizam, if open interest goes up, it means option writing is happening. But this also means that people are buying more options. The logic here is that option writers are smarter lot, so if open interest of calls go up, so maybe that means market won’t go up. So check for open interest.

      • Nizam says:

        Hi Nithin,

        Thank you.

        When you say:
        “if open interest of calls go up, so maybe that means market won’t go up. So check for open interest.”

        Do you mean the Open Interest of a particular call strike? or The total open interest of all call strikes listed for a stock?

        • If you are seeing OI go up on a particular strike, if you believe that option writers are usually right, that would mean that option writers don’t expect price to go above this strike in case of calls.

  124. Nizam says:

    Hi Nithin,

    Thanks for your valuable information and sharing such a nice idea to overcome the risk. I have not seen such a kind of guy like you. Most of the people afraid of sharing info to others by thinking that they will benefit out of it. Even I myself feel the same.

    After looking at your posts/sharp response, I realized a lot and trying to develop at least some kind of your personality.

    I said above words just to convey my thanks for your hard work.

  125. Nizam says:

    Hi Nithin,

    Assume I sold a put option at the beginning of the new series. After few days, I realized that it is going against to my expectations. Can I square off my short position before the expiry date? I just want to know whether I can stop getting in to unexpected loss.

    Thanks.

    • Absolutely you can exit any time you want. If you are trading stock options, some of these contracts can illiquid, so even if you want to exit, buyers/sellers might dissapear. In such case, you will have to say buy futures to book your loss. Whenever the liquidity arrives in the option contract, you can exit both together.

  126. gskakke says:

    Can i short/write banknifty weekly options on its expiry day (i.e thursday) & that too near the end of market hours?
    For ex. if i short/write BANKNIFTY22SEP1619900PE at 9.50/- (Qty 400) at around 2:00 pm & the option value goes to zero at 3:00 pm. then i would be making profits in this scenario?

  127. Jinesh says:

    Hello,

    1) How those margin requirement is to be satisfied ? Is it cash or it can be stocks as collateral as well ?
    If my understanding is correct it can be 50:50 (Cash : Stock). Please correct me if am missing something.

    2) If stock is used as collateral does brokerage charge any DPC or any charges ?

    3) I made one trade- Sell ONE LOT BANKNIFTY for strike 19700 and expiry at Sep-End. Current Bank Nifty is around 19800.

    Margin Required = Rs.59,000.
    Total Premium = Rs.880.
    Time to expire = 29 days.
    Brokerage + Tax = Rs115 (one-leg)

    My Expected Return on Margin (if 100% cash), if hold until expiry = around 16%.

    Now, if I put Margin with 50:50 (cash + stock), my Return number (on cash margin) would be doubled = 32%.

    Are my numbers correct ? or am I missing anything.
    Do I have to pay any interest (DPC) on stock being used as collateral instead of cash ?

    Regards,
    Jinesh

    • 1. Yes 50: in cash and 50 in collateral is good. Check this post.
      2. No charges unless u have cash lesser than 50%, check the post I shared.
      3. I am guessing u r talking about 19700 puts. Rs1000 for Rs 50000 invested is 2%, so ur % calculation is wrong.

      • Jinesh says:

        Thanks for your reply.
        1) Went through your post and other linked discussion.

        So my understanding is 50% margin needs to come from cash and rest can be collateral.
        -And interest is charged on shortfall of cash margin. If 50% cash (or liquid bees) is maintained. No interest charges.
        -And on collateral only charges are of pledging and un-pledging, which in zeroadha is Rs.60 per script.

        Am I correct ? Am I missing any other charges.

        2) If , I have 10K cash and 40K collateral.

        For overnight, option writing position with 50K margin need.

        I will be charged interest on Rs.15K.

        Please correct, if I am wrong.

        3) Other Brokerage firm with Rs.10K cash and Rs.40K collateral.

        has charged interest on entire Rs. 40K.

        and even if it is Rs.25K cash and Rs.25K collateral,

        they have charged interest on Rs.25K (collateral).

        Kindly let me know, if it is as per regulation ?

        Regards,
        Jinesh

        • 1. correct
          2. Yep
          3. Can’t comment about other brokerages, but ideally interest should be charged only on cash which is short (when I say short, whatever cash required to match 50%).

  128. B Vamsi Krishna says:

    Sir, I have a doubt.

    For example, I short/write SAIL(Steel Authority Of India) call at 1.35/- (Qty:12000), they are blocking 90,000 as margin from me. At the end of the day, for example, it goes to 1.00 but I did not buy the same to square it off. If I wait till the next day, will they take any extra margin next day also?

    Same way, for example, it goes to 2.00 and I wait for next day. In this case will they take any extra margin next day also?

    Thanks,
    Vamsi

  129. r muralidharan says:

    hi nitin , i have a doubt in call writing example

    if i short a nifty 9000 sep ce for 12.75 and ur margin is 40033 if it goes in favour of me and i quit the trade by buying the option 9000 sep ce at 1 rs

    as per ur cal the profit is 11.75*75 = 881 and my marging will be refunded after deducting brokerage right .
    i m right or my margin will be totally deducted . pls rep client id dm2877 .

  130. sahil gupta says:

    NITIN SIR , Please explain the stoploss trigger in call writing by system if i dont place any stoploss…

  131. bala says:

    Hi nithin,

    i have brought sbin 260 ce august 1lot @ 3.55. Now it is @ 0.65 cmp. What will happen if it is expired. say for example if it expired @ 0 cmp.

  132. Manowar says:

    I have noticed that even after the rise of option premium , it shows negative % value. why..?

  133. pawan says:

    Hi Nithin,

    How can we use theta,gamma & vega for option writing ?

  134. sahil gupta says:

    HOW STOPLOSS TRIGGER IN OPTION WRITING , IF I WRITE IDEA 100 CALL AT 5RS PREMIUM SAY LOT SIZE IS 1000 PRMIUM RECEIVED IS 5000 AT WHAT PRICE OUR STOPLOSS TRIGGER,

  135. Ravi says:

    Hi Nithin,

    I have bought a option’s call at 0.6… and now it’s .15! My query is, if this call becomes zero by expiry, do i still need to pay stt and other charges…or as it’s becoming zero..no value…so no STT?

    • Venu says:

      It’ll become 0 if it expires out of the money. Then you don’t pay any STT. If it expires with some value, then you’ll pay higher STT.

  136. Kaushik says:

    Hi,

    When I try to short any option the initial margin ask price is very high and when the order gets executed, the margin blocked is very less. To give an example on today’s experience,

    When I placed a short order of 4 lots (300 quantity) of Nifty JUL 8800 PE, as the order was in the queue yet to be executed on my price, I saw that the margin blocked was around 90K and later when the order got executed, the actual margin that was blocked was only around 29K.

    Can you please explain this anomaly?

    • I am guessing you had other positions open in your account. Exchanges block margin on portfolio once a position is taken. So if you were shorting puts and you were say short futures, that is lesser portfolio risk and hence margin required for both positions would reduce. You can use our SPAN calculator to check margin benefits.

  137. V P Shenoy says:

    Let’s say that my view is bullish. Sometimes I find that buying a call earns you better profits rather than selling a put (of the same strike price). Yet other times, selling a put earns you better profits rather than buying a call (of the same strike price). Why is this so?

  138. I have written 5 lots of options in USDINR 69.25CE. Now there is no liquidity at this level. But, I have still have open position for the same. What will happen to my position on expiry?

  139. LMukesh says:

    Need help to understand regarding Index options.
    1) Incase of Nifty Aug 8700 index option is 92.00, What is the Volume of that index
    2) When it increased and decrease. What is total Buy / Sell Quantity.
    3) Same can be happened for PUT also, so on expiry what would be effect of them.

    thanks and regards,
    Mukesh

  140. Sangita Mishra DS8948 says:

    Dear Nitin ji i heard about leap options of Nifty is available, what is eligibility to trade Leap options

  141. Ravi says:

    Hi Nithin,

    I am providing the example here for my query..

    Say some stock (for eg:Adani Ports) quoting at 215, and it’s 200 PE is quoting at 3.9, and with the assumption that, this stock will not go down below 200 on expiry date, I have sold stock 200 PE (Instrument Type: OPTSTK, Option Type: PE, Action: Sell, Strike Price: 200). In this case, 9750 will be credit to my account.

    Queries:
    1.If the stock close above 200 )for eg: 200.5), then 200 PE becomes 0…in this case, my profit will be 9750 right?
    (somewhere I read, at selling point STT will be charged..where can i see that charged amount?)
    2.If the stock closes at 199, then 2500 will be deducted, right?
    3.In the above selling scenario case, how much amount would have blocked, considering 15 more trading days exist before expiry?

    Please reply..Thanks.
    Ravi

  142. Sujatha says:

    Hi.
    Please consider this example. I have rounded the numbers for easier understanding. I got the margin from zerodha calculator.
    I want to sell a call option at strike price of 400.
    Span margin – 1,45,000
    Exposure margin – 90,000
    Total margin – 2,35,000
    Premium receivable – 10,000.
    Now assume the premium is Rs.10.(10×1000)
    1.If by expiry the premium stays below 10, should I square off just let it be?
    2.If by expiry the premium goes above 10, can I square of at say Rs.12 to book a loss?
    3.If before expiry the premium drops to 2, can I square off to book Rs.8 profit?
    4.Will my total margin get credited back automatically to my account when I Square of or dont square off on expiry?
    Please explain.

  143. Arun says:

    June 23, 2016 at 3:37 pm
    Hi Nithin,

    I choose to WRITE OTM Options at random around 600-800 points away, eg; if NIFTY SPOT is @ 8000, then i WRITE 8600 CE or 8800 CE of the Current Expiry and square off my position, when my target amount of profit is achieved. i repeat the same multiple times within an expiry. My success ratio is average and my returns are not consistent. What is the professional way to apply this strategy / choose the right strike price / how to apply a stop loss mechanism for the same. Do we need to apply technical analysis for adopting this strategy, if yes, how to go about it…..Kindly Clarify

    Best Regards,
    Arun
    RI0285

  144. Arun says:

    Hi Nithin,

    I choose to WRITE OTM Options at random around 600-800 points away, eg; if NIFTY SPOT is @ 8000, then i WRITE 8600 CE or 8800 CE of the Current Expiry and square off my position, when my target amount of profit is achieved. i repeat the same multiple times within an expiry. My success ratio is average and my returns are not consistent. What is the professional way to apply this strategy / choose the right strike price / how to apply a stop loss mechanism for the same. Do we need to apply technical analysis for adopting this strategy, if yes, how to go about it…..Kindly Clarify

    Best Regards,
    Arun
    RI0285

  145. Amar says:

    I have been trying to figure out margin required for writing weekly BANKNIFTY option but I cannot find it on Zerodha Margin Calculator. Can you provide the calculation or alternative for the same!!

  146. Murali says:

    I always wanted to trade Nifty Option.I’m basically a scalper with a very small capital to trade.But Sir,while trading Options I cants place SL and Target order at a time(due to small trading a/c).So I had to trade stock fut where I can protect the loss with SL and desired target order.

    Can you give any clue how to solve this issue,so I can enjoy Option scalps with Zerodha?There may be some solution to this..someone may e doing this.

    • Unfortunately the way exchange requires margin for option shorting, placing SL and target at same time won’t be possible unless you have some extra margin.

  147. Siddhant says:

    Hi Nitin,
    Just trying to get some day trade option writing concepts clear here.
    Am looking at Nifty 8200 Puts (at 12:26 today) its at 121.65. I want to short the same now.
    What I see when I put these details in the SPAN calculator are:
    SPAN margin – Rs: 27,836
    Exposure margin – Rs: 18,352
    Premium receivable – Rs: 9,461
    Total margin – Rs: 46,188
    What is the Margin that I need in my account to short 1 option of this 8200 Nifty Put?
    Is it ‘Premium receivable – Rs: 9,461’ OR is it Rs 9237 (40% of Rs: 46,188)?
    Thanks,
    Sid

  148. Manish Chandra says:

    Sir,Nifty is at 8100.I understand buying 8400ce or 7900pe.But whats the benefit of buying 8400ce or 7900pe of next series?

  149. MK says:

    Hi Nitin,

    Nice post, well explained in a nice way for novoice trader as well.

    Question : – 1) – for arbitrage orders and covered calls or put with spreads. will it count as each order separate margin or exchange can recognize these as covered items( in order to block as less margin as possible)
    2) – what possible way to block margins as low as possible – since writing both OTM items, or different calendar periods products can lead to minimal risk so as minimal profit. but will the margin be discounted or it will be blocked in full.
    3) – guide for lowest margin block for option writing.

    Best Regards
    MK

    • 1. Exchange doesn’t recognize this as a combined position. You will have to keep separate margins.
      2. You get margin benefit, check our SPAN calculator to see how much margin benefit.
      3. margin requirement is stipulated by exchange, no way around this.

  150. Jatin says:

    @K.Joshi and Nithin,I faced slippage problem trading only 30 lots of NF Options many times.
    I use SL-M order for buying and limit order as a Target order.
    So,technically 3 points is not a good idea if you considering a scalp with NF options.

    Am I right?

    • Depends on which contract of options you are trading. Ideally the just OTM options are most liquid. But yes, if you are trading deep ITM or deep OTM, then yeah 3 points not a good idea.

  151. K.Joshi says:

    I’m trading with 8-10 lots NF Options.
    Just curious to know Nithin JI-
    If We buy 100 lots @ say 150 and we want to cover in just 3 points profit i.e, 153,
    will our all 100 lots get filled?

    buy 100 lots @ 150
    target 100 lots @ 153

    possible?

  152. K.Joshi says:

    Nithin Ji.how many lots of Nifty options can be bought at a time by a retail trader?

  153. Siddhant says:

    Hi Nitin,

    One specific question when it comes to Option writing.
    Here is an example:
    ICICIBANK Put Option shorted on 21/05/2016 at 3.28 PM.
    Strike Price: 220, Premium: 3.35
    I want to know what will happen on Monday (23/05/2016) in the following situation.
    – ICICIBANK stock moves up with a gap up.
    – 220 strike price premium opens gaps down by 1 Re to 2.35
    – At the end of the day (23/05/2016), ICICIBANK recovers a bit and the premium closes at 3.00.
    In this case which of the following will happen?
    A) A premium of Rs 0.35 (3.35 Cl on 21/05 Less 3.00 Cl on 23/05) will be credited to my account OR
    B) I will have to pay a premium of Rs 0.65 (Op Premium 2.23 Less Cl premium 3.00)
    Your guidance will be much appreciated
    Thanks,
    Siddhant

    • The entire premimum of Rs 3.35 is already credited to your account the day you short the options. Your obligation of paying Rs 3.35 reduces to Rs 3, so the margin blocked for writing this option reduces proportionately.

      • Siddhant says:

        Hi Nitin,
        Sorry to keep bothering you on this. But, somethings are still not clear to me where overnight options writing is concerned. Here, is an example to explain the doubt in my mind.
        Today (13-Jun) LT – 1450 Puts were trading at around Rs 26 at 3.25 PM.
        Let’s say I shorted the same. An amount of Rs 7800 (300 * 26) is credited to my account at EOD….Is this correct?
        At the same time I need a margin of around Rs 65000 in my account to do so…..Is this correct?
        Until I square off the 1 lot that I have the next day (14-Jun), I will not be able to use the margin…..Is this correct?
        On 14-Jun, I square off the option at Rs 24…..Here, Rs 7200 (300 * 24) will be Dr to my A/c freeing up the margin of Rs 65000….Is this correct?
        In the bargain I net Rs 600 (Rs 7800 – Rs 7200)…..I guess this is a given.
        Thanks,
        Sidddhant

  154. Rahul says:

    Hey Nitin

    Great job..

    Was just wondering,if you guys have tools in Options segment, that could hypothetically auto calculate;

    -Max risk/max reward for set ups like strangles,iron butterflies,etc;
    -Max +ve & -ve ROI on such set ups;
    -ITM probabilities for various option strikes
    -Basic money management stuff like how much margin will be blocked say if i put on an Iron Condor on the Nifty etc etc

    So if we are able to quickly have above info on our fingertips,
    Something like what Tom Sosnoff did with Think or Swim in the States- They have really empowered thousands of traders there,if u guys can do the same here,would be awesome.

    Cheers,

    Rahul Pai.

  155. vishvanath says:

    Hi Nithin,

    I have a question regarding option margin. If I have sold NIFTY-MAY-7700-PE at Rs 100 and If nifty decreases suddenly and price of NIFTY-MAY-7700-PE increases to Rs. 200 or even more, will my position gets squared-off automatically? , provided the amount in my trading account is equal to the margin required when the price of the option was Rs.100.

    Though I would be in loss now, assume that on the day of expiry nifty will be above 7700 and I will be under profit.

    • When PE goes from 100 to 200, the margin required to hold this position will also go up significantly. If you don’t add more margin, yeah chances are that it can get squared off.

  156. Manish says:

    Dear Nithin,

    I’m a Zerodha customer. I want to know whether I can get any margin on writing options for Intraday. Currently as per your margin calculator, I have to approximate pay Rs 40,000 to write 1 lot of Nifty. So, is there any margin available like you have for Intraday trading in the Cash market?

    Thanks

  157. Sagar says:

    Hi Nithin

    I have a very basic question but it’s confusing me. I sold one lot of Put options on NIFTY. I expected a premium to be received, however when I check under “Funds” on KITE, I see the premium amount as negative and my total cash + margin position same as before (i.e. no sign of premium getting added).

    Am I missing something here please?

    Regards,
    Sagar

  158. projjwal says:

    Hi Nithin,

    Say for March Expiry if i write 1 lot of Nifty 7750 CE and if Nifty goes above 7750 on expiry date should i need to buy it on expiry date since i will be in a loss or i can exercise the option as well (Given that i do have the required balance in my account).

  159. Romeo says:

    Dear Sir,
    thank you for this amazing explanation in plain and simple language.
    My query is
    if i am selling an option contract, and if i do not close my position and let it be exercised at expiry, then my profit at expiry is the difference of my sell and buy premiums OR its the difference of my selling strike price and spot price at expiration…
    Example…
    IF i sell 100 quantity of nifty 9000 CE @ 100 and if nifty expires at 8500, then at expiry my profit will be ((100-0)X100=10000) OR ((9000-8500)x100=50000) ?
    Awaiting your reply.
    Thank you.

  160. Kalyan Debnath says:

    Hi Nitin,

    Can you tell me that how to identify short buildup or long buildup in call or put in nifty.

    Thank You

  161. Jai says:

    Hi Nitin,
    I’m an existing client of zerodha.
    Nifty 6600p march expiry is trending around Rs. 6, I want to write it till expiry with 100 lots. How much margin need for this trade and how much brokerage stt etc etc of total expenses it will cost to me.

    Thanks & Regards

  162. Rajat says:

    Hi,

    Today I wrote 7 contracts (525 qty) of NIFTY 6950 PE at 1.35. My stoploss was at around Rs. 13 as SL-M order as I was pretty sure NIfty will not move below 6950 in the remaining time. But in the below chart you can see a spike came at 2:55, My stoploss was hit and executed at Rs. 19.65. If I look closely to that 2:55 candle I see that it made high of Rs. 17.45. Then how my orders are executed at Rs.19.65?

  163. GOPALAKRISHNAN R says:

    Sir,
    I have one doubt. i am new for F&O
    i am holding March month Options call contract for NMDC stock.
    NMDC announced DIVIDEND on 24-02-2016.
    shall i get this dividend or not?

    • Venu says:

      You are entitled to receive Dividends only if you’re holding the stock, not stock options. You will not receive any dividends for holdings call options of NMDC/

  164. Jai says:

    Any one plz tell, if nifty is at 7000 and i short 6900 call options inyraday at rs. 100 means i got rs. 100 as premium, now if i covered it at rs. 110 then what will be happened ? 1. I will get a loss of rs. 10 or it will be no profit no loss ?

  165. kishore says:

    Hi Nitin,
    I would like to know about turn over calculation in option selling.Is it in anyway different from buying?

    For example , if i sell nifty 7500 ce @ 300 and book it(ie.buy) @ 150, what would be my turnover?

    is it like this , selling price 75* 300= 22500+ 11250(profit/loss difference)=33750.

  166. Darshan says:

    Hi Nithin,

    I have following query with respect to trading. It would be great if you can please throw some light on it.

    1 – Is there a facility with zerodha to place short strangle like we have calendar spread for futures in Pi?
    2 – If I place order in Pi, can this open position be viewed in Kite and vice versa ?

    Suggestion – There should be small tab in order window which on clicking should show the approx margin that will get blocked based on the inputs / parameters provided by the trader. This will help trader placing order in 1 shot. Thanks

    Regards,
    Darshan

  167. Yogesh says:

    Hi,
    I would like to know if I write nifty call option 8000 (currently nifty is at 7400). Its premium is say 10 rs.
    after 10 days, nifty is at 7600 but the premium of nifty 8000CE is 6 rs. If I square it off, then will I earn rs.10-rs.6 = rs.4 profit per option. The expiry is 8 days away from the date of squaring off. So Instead of waiting for expiry, i square it off before expiry. Kindly guide me if I am correct. If I am wrong, please let me know how.

    Thanks,
    Yogesh

  168. Mungerilal says:

    sir,will you please give an example of deep ITM and deep OTM option?
    if I buy such options,say 100 lots(NF 7500 qntity),will be there a buyer? Because I see a less buyer in some options?

  169. eku says:

    Securities under ban: DLF, JPASSOCIAT, RELINFRA, UNITECH??

    Whats the meaning of this ?
    Should I avoid trading abv futures until the ban is cleared??

  170. eku says:

    Hi Nithin 🙂
    Few queries-
    1)Can we use SL-M order to buy a Call?

    3)If I buy 10 lots CE @ say 60,will all my 10 lots get filled at 60?
    (How much slipage is there in option)

    thx

  171. eku says:

    Hi Nithin,
    I’m looking for quick/small scalps in NF Options,Pls help me understand it with few queries-

    1)IF CMP is say 7240 and there’s some support and we have a bullish view,which CE do we buy for 8-10 points profit?(I’m expecting 8-10 pnts move only)

    2)And say we get a sell signal in chart at 7287,which PE one should buy?

    thx

  172. Ashu says:

    can explain pay in amount or cash balance in limits

  173. amarnath says:

    procedure to de materialise shares held in physical form.

  174. Satyajit Shetty says:

    hi sir,
    I am sorry if this topic has been discussed before but I have a small confusion
    if i short OTM – CE & PE one lot both for intraday then
    will i have to pay the premium say for 7700ce & 7700pe if shorted for intraday.
    in the SPAN calc it shows premium receivable 5168 & 17678 is that means that this amount will be deducted from my account for intraday

    regards

    satyajit

  175. BK says:

    So I know theoretically what options are.

    My doubts are:
    1. I feel that JSW Steel is going to fall, so do I buy a put option? If so, how do I decide the strike price because what I’ve entered in the SPAN Margin calculator shows up as N/A.

    2. Can futures be shorted overnight?

  176. Kaushik says:

    Hi Nithin,

    Is the margin requirement lesser under MIS (same day) for short selling? In that case probably, in the SPAN calculator, you can have an option to check for margins if I am short selling under MIS.

    Kaushik

  177. Rohit says:

    HI Nithin,

    I have a question regarding writing call options on stocks.

    Say, I write a call option for stock ABC @ strike price 50 and the spot price is 45. This transaction is done at the beginning of the month.

    Now, Imagine on the last Thursday of the month, the spot price is 55 and the call option I sold is in the money.

    What will happen if I dont square off my position before expiry and no one exercises the call option either?

    Will the exchange square off my position automatically or will it be exercised automatically?

    Or will it expire worthless?

    Regards
    Rohit

  178. Kaushik says:

    Thanks Venu!

  179. Kaushik says:

    Thanks a lot Nithin for the prompt reply, as always!

    One more query that I had is, the margin that is calculated for shorting, is it for a certain range of the underlying product or is it calculated every day after the close of the market?

    For example, if I short 2 lots of Nifty 8000 call and say the margin blocked is around 1Lac, will this margin be valid/not change for a range of nifty movement (say 7900 to 8100) or will the margin be re-calculated every night depending on the price movement of the nifty? Reduce if Nifty decreases or increase if Nifty increases.

    I don’t know know if I was able to explain it well!

    • Venu Madhav says:

      The Margins are computed on a daily basis considering factors like change in underlying, volatility, time left for expiration. As these factors keep changing, margins also change accordingly. The Exchanges compute margins using a system called SPAN (Standard Portfolio Analysis of Risk) developed by Chicago Mercantile Exchange (CME).

  180. Kaushik says:

    Hi Nithin,

    Thanks for the nice article. I have a query though, let me see if I can explain my question!

    Let’s say I short Nifty OTM call and put together and the margin required is 50K (for ex) for both the shorting.
    Next day Nifty rises by 50 points, hence the margin requirement for my call shorting also increases, at the same time the margin requirement for the put short reduces.

    Does that mean that, at any point of time the margin requirement remains constant if I short a call and put together?

    Please correct me if I am wrong.

    • Yes & No. Margin required to short depends on risk, and risk increases as and when an option becomes ITM from OTM for a writer. Assume that the market keeps going up and ur call option is ITM. Now, the margin increase for shorting calls will be much higher than the margin reduction for put option.

  181. sameer chandra jha says:

    sir , i have querry regarding blocking additional margin while shorting nifty , suppose if 7300 pe 1 lot i have sorted at 25, and initial margin blocked is 12k , suppose sir if it just increases to 125 , then approx how much more mony will be blocked in addition of above margin ,

    Thank you .

  182. Abhishek says:

    Hi Nithin,

    I know that the lot size for Nifty options is increasing to 75 for november expiry and onwards. Has the margin requirement to write options also increased? The span margin calculator is showing that writing a 7000PE for november would require Rs.50,756 in margin, whereas I would have expected it to be only around 40,000.

  183. sameer chandra jha says:

    sir, i have a query regarding option writing that suppose if we sell nifty option for ex —4 lots of nifty 8200ce then for squaring it offwhether we have to buy same lots of 8200ce or different lots of that strike price because price in writing option is more than (premium *lots*lot size), and secondly if we didn’t square it off till expiry then will it be square off automatically . please help me regarding this query .

  184. shahzeb khan says:

    Sir,
    i want to study short selling of stocks in detail and if is it allowed at BSE and NSE.
    Please provide me the details or any link. is there any other criteria of taxes or etc for shorting.

    Thank you

    • Venu Madhav says:

      Short selling is nothing but selling a stock first and then buying it back. However you cannot short and carry forward such short positions in the Equity segment as you’d have to deliver these shares on T+2 day. If you want to short sell, you’d have to sell futures of such stock.

      • shahzeb khan says:

        Thank u for replying, Sir u mean to say its just like normal trading hence you sell first and then buy but we can not carry such position over night we have to take delivery of these stocks.

        If you want to short sell, you’d have to sell futures of such stock. i didt not get it cant we square off our position whenever we want in short selling?

        • Venu Madhav says:

          Yes, its like normal trading where you sell first and buy later. However when you sell first, you’ve to make sure you buy it back on the same day. When you sell you have to “give” delivery of stock not “take” delivery.

          Apart from trading in Equity markets, you can also trade in the Futures & Options (F&O) segment. If you sell Stock in the Futures market you can carry forward such positions (i.e you need not buy them back the same day). To get a thorough understanding of how the Futures market work, do go through this module on Zerodha Varsity: http://zerodha.com/varsity/module/futures-trading/

  185. Prateek says:

    Hi,
    Consider below example – expiry date 24/09
    On 01/09 – I write call 8500 CE Nifty @ 50 quantity – 100
    Because of some reason market moves high very fast, let say
    On 10/09 Nifty at 8700 and 8500 CE value is 300.
    In the above case, I’ll be in heavy loss on 10/09 till but long way to go for expiry
    My question – is there any possibility to square off my position automatically due to heavy loss on that day.

    • When you are short options and market moves against you, the margin required to write also goes up. So yes there is a possibility that if you don’t have enough margin that your positions could be auto squared off.

  186. Dk0046 says:

    Nithin,
    I have some basic questions on Options writing:
    1. Is M2M calculated on daily basis on options writing?
    2. How is F&O obligation calculated on options writing?

    Would help if you can explain with an example. Let me take a hypothetical case:
    1. I write an option worth 100 Rs on Day 1, it closes at 105
    2. On day 2 it closes at 110
    3. On day 3 it closes at 90
    4. On day 4 I square off at 80

    Can you tell me what happens to M2M and F&O obligation on each day?
    Thanks

    • There is not really m2m as such that happens when you short options. When the market moves against you, the margin required keeps going up significantly. So in a sense it is m2m of the margin that is blocked for writing options.

      Assume margin to write calls is 10,000 when price is Rs 100. (lot size 100)

      Goes to 105, market moves against you, the new margin required goes upto 10500 + (500 loss, which gets covered in the margin blocked).

      Goes to 110, new margin required 11000

      Goes to 90, margin drops to 9000

      Goes to 80, margin drops to 8000

  187. Sukesh says:

    Hi Nithin,

    There is usually some difference between the Last Traded Price of a Instrument & Closing price.
    Could you please explain the reason for this?

    I think i have read the reason somewhere but have forgot..

    Screen shot example attached.

    Thanks
    Sukesh

  188. Prateek says:

    Is it possible to deep out of money call write with Zerodha

  189. Abhinav Jain says:

    What is the brokerage charged by zerodha for ITM options settlement at expiry day? Please explain for both Buying and Selling.

    • Brokerage remains the same, nothing changes on expiry day.

      • Abhinav Jain says:

        If the trader does not square off his ITM option position and settlement is done by exchange on expiry day, then in that case, is there any brokerage by Zerodha? For example, if nifty is at 8500 on day-1 of the month and I sell a lot of CE_8400 option for Rs. 250*25 and give brokerage of Rs.20 and margin money. On the expiry day nifty reaches 8420 and my sold option has a value of Rs. 20*25 which I don’t buy. After exchange settlement, I get a profit of Rs. (230*25 – Brokerage – STT). What is the brokerage in this procedure of exchange settlement?

  190. Abhishek says:

    Hi Nithin,

    Would the haircut on Liquid Bees be less than 20%?

  191. Abhishek says:

    Hi Nithin

    Can we use equity mutual funds as collateral margin? To be able to use MF as collateral, would I have to invest in mutual funds through Zerodha first? Let’s say I invest 10 lakhs in MF’s and pledge it, how much of that 10 Lakhs will I get to use as margin money? Let’s say the value of my mutual funds increases from 10 Lakhs to 11 Lakhs, The amount of margin I can use will increase too, right? Let’s say I invest another 5 lakhs, will i have to pledge that separately as well? Thanks.

    Abhishek

    • Abhishek, currently we don’t accept MF as pledge. But there are ETF’s which are like index mutual funds trading on the exchange, which can be bought and pledged, for example Nifty Bees, Bank Bees, among others. Yes, as the value goes up of your pledged investment, you get more margins. Check row 842 onwards on this file. Yes, if you invest another 5lks, you will have to pledge that separately.

      Haircut will be around 20% on such funds. So for Rs 100 invested, you get around Rs 80 as margins.

      • Abhishek says:

        Hi Nithin,

        Are there any plans by Zerodha to eventually accept mutual funds as pledge? Returns on ETF’s are nowhere near the returns on good mutual funds. Any reason why you don’t accept MF’s?

  192. Mangesh says:

    Suppose i have sold one call option and one put option of Nifty.

    Market moves in some direction on the next day … my profit in one option is equal to loss in other option… so am i suppose to provide any additional margin money?

    • When you short options the profits are limited but losses are unlimited. So the profit on one is never really proportional to the losses you make on another. But as long as they are the same, no need of more margin. But if markets start moving against you much more, the losses will tend to start getting bigger than profits, in which case you will have to transfer money.

  193. Amit Nanda says:

    Just to clarify if I have understood correctly:

    Nifty is trading at 8575 on 5-Aug.

    1. I short 1 lot of Nifty Call option of strike price 9000 at ₹ 6.80. It is highly unlikely that Nifty will reach by end of expiry in August; hence this option will expire worthless. Therefore I would gain 6.8 x 25 (1 lot) = 170. Is this understanding correct? Since it is a highly unlikely scenario of Nifty hitting 9000 in this expiry, it is a relatively much less riskier trade to take. Right?

    2. I short 1 lot of Nifty Call at 132.5 and 1 lot at 89.8 just before close of trade on 5-Aug – both at the same strike of 8550 (nearest strike). The combined premium is 222.3. Due to time decay, the “combined” premium of Call & Put options should decrease by end of next trading day (say 215). Of-course the premium of Call and Put options may increase or decrease individually depending on the direction of Nifty movement, however the combined premium should decrease (due to time decay) assuming that volatility remains fairly stable. By end of next trading day (that is on 6-Aug), I can square-off my position and gain 7.3 (222.3 – 215) x 50 (1 lot for Call + 1 lot for Put) = ₹360. Is this understanding correct? Since there is almost always enough volatility in Nifty, I should be able to square-off my position easily and not worry about liquidity. Unless the volatility increases significantly in 1 day, there is a high probability of gaining in this scenario. Right?

    Could you please confirm if I have understood shorting of options correctly in the above 2 scenarios?

  194. Mangesh says:

    Can collateral margin be used for option writing?

  195. Shan says:

    Thanks Nithin. I got the doubt only because turnover tax is calculated on the premium and not on the contract value.

  196. Shan says:

    Thanks for all the initiatives from Zerodha. I have a question regarding Zerodha option brokerage.

    If I buy 1 lot of Nifty options at 84.15, my premium ( turnover ) is Rs.2103.75. I expect to be charged 0.01% of turnover 2103.75 as brokerage. However flat Rs20 is charged as brokerage. Could you please clarify.

    • Shan, it is 0.01% of the contract value (not premium value). So if you buy 100 nifty 8500 calls at Rs 20, the contract value is Rs 8.5lks and premium value is Rs 2000. This is 0.01% of Rs 8.5lks (Rs 85) or Rs 20 whichever is lower.

  197. vishal says:

    hi nithin , plz check this
    screenshot – stoploss order not asked for nifty option short
    and u said that Margin for BO & CO depends on the stoploss you choose.
    means really what ???

    • Ah didn’t realize u were asking for short options. For futures it depends based on stoploss, for options it is fixed. But u can use that calculator to get an idea of margin required.

  198. vishal says:

    hi nithin , plz clear my doubts about nifty option writing intraday leverage
    1) 2.5 times leverage of total margin in MIS . right ???
    2) how much leverage in bracket order type and cover order type ???
    ( how much maximum stoploss required in bracket order and cover order ??
    plz explain with example for bo and co )

  199. Shibashis says:

    Hi,
    I’m new to Options trading, please clarify the following doubts.
    I bought options using NRML as product type in overnight example: NIFTY15JUL8450CE bought on 9/7/2015. As per contract note Gross rate per unit is 79. Although 11/7/2015, LTP is 86 still M2M showing -80. I bought 1 lot.
    Why M2M is negative when premium rate is increasing ?

  200. syam.mohan.vs says:

    Odds are in favor of option writers only if they wait till expiry. Otherwise odds for option buying and selling will be defined by the strategy one uses. Also in writing options unlike buying one needs to keep a margin amount. So writing options not that attractive and also too risky (because losses are unlimited unless its capped my more complex strategies) unless one is doing so close to the expiry and that too OTM options. So am more or less an option buyer except when am trading near expiry day.

  201. Shailesh says:

    Hi Nithin,
    I have a query on options buying and selling. If I buy a CE (or a PE) and sell it after a profit, is my transaction over? I am asking this because as a seller of an option, I have an obligation to sell the underlying security to the buyer if he chooses so.
    Does that mean that I may have to arrange for it at a later date?

    Or am I not obligated for anything because I just ‘sold’ and option and didn’t ‘write’ it? In that case, who sells the security to the buyer of the CE?

    Please clarify.

  202. Abhishek says:

    Hello Nithin,

    How accurate is your SPAN Margin calculator? I have seen in a lot of the posts where you mention that writing one option contract would require about 20k in margin. But the SPAN Margin calculator on your website shows me that you’d only require 13,500 – 14,000 per contract for options that are about 5% out of the money. Could you please clarify as to which figure is more accurate?

  203. Digvijay says:

    Hi Nitin,

    First of all, I have no words to appreciate your initiatives in the form of Varsity, PI, Nest, Span Calculators, Blogs, low brokerage, sustained credibility and many more. However, I would still use much underplay word against your work as “THANK YOU”

    My questions are regarding trading:

    1. Do you suggest options are less riskier than future trading?
    2. Do you suggest options writing is better than option buying?
    3. I have been trading options buying, delivery & Futures but would like to venture in Options Writing. So my query is: Nifty Spot – 8100; I believe that it will not go beyond 8700; so I shorted Call of strike price 8700 at (for e.g.) 2.90 means 72.5 apx premium received. Now, if I see that nifty is trending upwards, so can I buy that call back if nifty strikes 8700 to limit my loss and close the position at the breakeven? If this works then why we say there are unlimited losses in option shorting when people can watch and close their trades at the breakeven all the time?

    • 1. hmm.. tricky :). But yes, if you trade correctly definitely less riskier than futures.
      2. Option writing has higher odds of winning than option buying as explained in the post above.
      3. If you shorted 8700 call when Nifty was at 8100 at Rs 2.9. If Nifty goes upto 8700, the premium on 8700 call would have definitely gone up. Assume it went to Rs 100, if you now buy back, you will book a loss of Rs 97.1. (100-2.9). Your understanding is wrong, writing has unlimited loss. As soon as you shorted 8700 calls at Rs 2.9, if Nifty starts moving higher, automatically the premium will start going higher causing u a loss.

      • Digvijay says:

        Thanks Nitin. Kindly confirm if now my understanding is right based on your inputs.

        1. You mean if 8700 call has been shorted @2.9 *25 = 72.5 premium pocketed. But if Nifty starts moving higher, let’s say from current strike price of 8100 to 8200 then the premium must have gone up to 5.00 for e.g. Then if I buy back it will be @5.00 *25 = 125 that means a loss of 52.5.

        So, 2 situations: (a) Either I have to wait till it gets down (b) I have to wait till expiry if I believe that it 8700 will remain OTM and will become worthless @0.05.

        This means I am in profit as long as the premium is <=2.9; as soon as it goes above it even by a rupee because Nifty starts rising then I am in a loss?

        2. Would it be then a better choice to trade nifty / banknifty using strangle for shorter dips through bracket order rather than taking risk of option writing?

  204. Karthic says:

    How to make covered call order in Zerodha? Is it possible?

    ie., if i have 100 ICICI stocks in my demat account… and if i write 1 ICICI option call on Jun 1st… then I leave it to expire on jun month end.. now my question is
    1. if my position is on loss, will the amount be debited or the shares will be debited from my demat account?
    2. as i have sold option call on jun 1st itself, and if the buyer excercises his rights in between, then what will happen?

    • Karthic, you will have to first pledge the 100 shares of ICICI with us (this can be done by sending an email to [email protected]). Once you have pledged after haircut, you will be given margin to trade futures or short options in your account.
      1. It is always best to keep some cash for any MTM losses. If the losses exceed the cash you have, it will start getting debited from the margin provided for your pledged shares.
      2. All options in India are European, so they can be exercised only on the expiry day.

      • Karthic says:

        Thanks Nitin.

        I have called Zerodha Support twice today and asked them a query on how to excercise the options to stock? But, on both the calls I got the same reply as “Options will expire on expiry date and you cannot convert the position to stock.” I am confused now. The main objective of call option is the obligation to buy the specified lot at a specific strike price on the expiry date na?! But they were saying that I cannot excercise (convert that to equity stock) options.

        • Karthic, in India all options are cash settled. There is no actual delivery of the underlying that happens. Suggest you to look at the options module here: http://zerodha.com/varsity/.
          A stock is at Rs 100, you short 105 calls at say Rs 2. On the expiry day the stock is trading at say 104. You get to keep the entire Rs 2 that you had received by writing the option. If stock on expiry day is at 107, you have to give back Rs 2. Do read up the module.

  205. paul says:

    what is the total number of options u can buy at any giving point .i have heard its 20% of OI or 250cr in index options and 50 cr in stock options .

  206. prasad says:

    Hi,
    Very nice article…
    I have a question…

    currently NIFTY is trading @ 8336..

    Expiry date : 30APR2015

    just 6 more days to Expire..

    So my question is ..what if we sell/write OTM calls…
    Say 8800 @2.55 (current premium)

    as there is no way that…NIFTY will reach above 8800..
    so option writer here will keep his premium (110rs in this case) with him at the expiry?

    in simple sentence..

    what if we sell/write OTM calls/puts near to the expiration ? is there any issue in it?

    I believe there is some thing in it..as every body will do it and get some profit 😉

    I just wants to know the back ground in it…

    • Yes Prasad the odds of making money writing OTM options closer to expiry is quite high. But here is the thing though, the margin required to write 2 lots and get that Rs 110, you need to block a margin of around 40k (around 20k per lot). So the return on investment is around 0.2% for 7 days, not much right ;).

      • Karthic says:

        So, Nitin.. in that case even though the profit is less we will surely get profit right??

        What will happen to the blocked margin amount? when will it get released?

        • Nothing guaranteed in the markets Karthik. What if something crazy happened and market suddenly bounced upto 8900? Your short 8800 calls will now make a loss of Rs 97.45 (100 – 2.55). Margin blocked gets released as soon as you exit your positions.

  207. Naven says:

    Nithin Sir, one small query if I go for Call sell position , I know my margin amount will be blocked but will it be debited by broker on next day or not? (Please Note I am not talking about premium.)

    Regards,
    Naveen

    • Naveen, the margin will be blocked immediately, as soon as you take the trade. Like in futures, margin is not debited, it is just blocked in your account when you write options. If you exit your position, the margin gets unblocked.

  208. M ANANTHA RAMAN says:

    Hi Nithin,
    If I want to initiate a long butterfly strategy will it be 4 trades one by one I have to initiate or can I do it at the one time?

  209. Milan says:

    Hi Nithin,
    can you specify any formula to calculate premium.

    today i compare two nifty closing.
    on 30th March : 8492.30
    31st March : 8491.80

    so difference is nearly 1.50 points.

    so now go to Option Premium of 9000 CE.
    Closing Price
    30th March : 11.35
    31st March : 8.55

    this is really big difference. how to calculate this premium price ?

    Happy Weekend…..
    Njoyyyyyyyy

  210. vipinenator says:

    sir,
    suppose i want to short/write strangle nifty 8400 ce/pe. total margin reqd for overnight position is 32,212.

    1) do i need to have this money at time of creating position in trading a/c
    2) or this is something like 25000 present in a/c plus 7200 premium received
    25000+7200 =32200

  211. Milan says:

    Hi Nithin,
    i have observed that…. Nifty Option Shorted, this technique is more profitable than buying CE/PE Nifty Option.
    Case 1 )
    i short Nifty April 8400 CE at Premium : 39 , Lot :250. (MIS)
    Than
    i must have to Buy Nifty April 8400 CE Lot :250 (as MIS) before Market Close….
    AM i Correct in case 1 ???

    Case 2)
    if today,
    i short Nifty April 8400 CE at Premium : 39 , Lot :250. (NRML)
    Than
    i must have to Buy Nifty April 8400 CE Lot :250 (NRML) Before 30th April (Last Thursday)….
    AM i Correct in case 2 ???

    Please Clarify in both case , i’m wrong…
    Thanks

    • Yes, you are right in both cases.

      Also if you have bought as MIS and you don’t square off yourself, at 3.20pm the system runs an auto square off. Also if you have short as NRML and don’t square off on the last thursday, the position will automatically get squared off based on closing price.

  212. Milan says:

    Hi Nithin ji,
    I’ve just read varsity option theory. And it clear my so many dounts. Thanks for developing tool like this.
    But one thing is not clear to me yet.
    Suppose bajaj auto currently trading at 2040 and i bought call option strike price 2050 with premium 6.35.
    So assuming that ….
    Case 1) traded price on expiry is 2056.35. Than no profit no loss.
    Case 2) last traded price is 2054. So intrisic value as 2054 – 2050 – 6.35… Still loss is 2.35 … Will my lot premium will be receivable ? To decrease loss from 6.35 to 2.35 ?

  213. Milan says:

    Hi nithin,
    I have learnt so many things as new trader from z-connect. Thanks for supporting.

    My query is if i short sell nifty call 9000 at 39 and later i buy it at 10 rs. Is it possible if my short sell was MIS … Than can i my buy as NRML to hold it overnight ?

    One more query …. If nifty current is 8345 and i write option April 9000 call of nifty … Premium is 10 rs. Next day nifty goes down say 8320. Then premium price down to 8…… At a time can i book profit and square off this contract ? Can i exit at this time ? Or my contract will be open till the april expiry ….. If i can exit then how much profit i will get in one day ?../
    .
    Thanks

    • If you sell and buy, you are out of the trade, so you will not have anything to hold overnight. But if you short Nifty call at 39 as MIS, you can convert MIS into NRML and hold it overnight. Check this post.
      Yes, you can exit it the next minute if you want to. 1 lot of Nifty is 25, so if you had short 1 lot at 10 and buy back at 8, so make 2 points or Rs 50 profit.

  214. ganeshms says:

    hi Nithin

    I have read the American Options can be exercised at any time and European Options can be exercised on the expiry date of the contract.

    1. Can you please explain what is exercising the options?

    2. Options can be sold and bought at any time within the expiry?

    3. Suppose if i am holding a position a (Call Option) on Bank Nifty, tomorrow my premium is increased from the buying premium – the profit earned will be credited to my account tomorrow or it will get credited while i close the position?

    4.Can you please suggest me any book on Trading in Options?

    5. If I trade in options in MIS (Intra Day) how much exposure i will get?

    Regards

    Ganesh MS

    • Ganesh, we have just started the option module on Varsity, check this out: http://zerodha.com/varsity/

      1. In India all options now are European. Exercising is basically when the buyer of the option exercises his right. Since in India all options are cash settled, exercising would basically mean that you get back the intrinsic value of the option. So if you have Reliance 900 calls and reliance stock closes at 920. If you exercise, you get back Rs 20.

      2. yes.

      3. In options the profit will be credited only once you close/exit the position.

      4. For option buying you don’t get any exposure. For option shorting, you will need 40% or 2.5 times exposure.

      • Naven says:

        hi Nithin,

        I am new in option writing but great fan of zerodha, the way you are responding queries here, my query is :–
        How Call Sell Process works in Option derivative case ? in given example , Suppose I take 1 lot of 1000 shares of X Stock at 5 Rs Premium , Strike Rate is 520 and Stock current price is 510 (please note I took this from Call Sell Lot), after 4 days what would happen If Stock goes to 512 , premium is 4 Rs (due to Time Decay) can I square off this transaction or not?If yes then how much profitable amount would be credited into my account (calculation please)

        · My Second query is if Stock goes to 530 and Stock premium is 0.5 paise on expiry date then what would be the total benefit/loss here

        · Third Query is if I do nothing till expiry and stock is below my strike price will i get the entire premium if yes then when it would be credited same day when I sold it or after I am closing the exercise means expiry date.

        my main question is mainly Stock premium reduce after few days considering this call seller will always be in profit then why we normally say he might get unlimited losses

        Regards,
        Naveen

        • Firstly you can get out of your option trade anytime you want. There is no rule that option shorts have to be kept till expiry.
          If you have shorted at Rs 5 and you buy back at Rs 4, you make Rs 1 x 1000 = Rs 1000 profit.
          If you have short 520 call, and stock is at 530, the premium will be minimum Rs 10, and it can’t be at 0.5. But assuming it is at 0.5, you will make a profit of Rs 4500.
          When you short options, the premium is credited to you the next day itself. On expiry, if you do nothing and stock remains below the strike, you get to keep the entire money you received when you shorted the option.
          What if stock goes 620? You have shorted 520 strike so you loose 100 x 1000 = rs 1lk loss.
          We have just started options module on Varsity, check it out: http://zerodha.com/varsity/module/option-theory/

  215. Milan Bhogayata says:

    Hi Nithin,

    As a Trader i’m really thankful for your great supports towards your client.
    you always ready to solve trader’s doubts and queries.
    I have never seen a CEO supportive like you.

    I’ve read that you were trading in day and working at night. so you were trading for a long time… over a decade. as i’m a fresh trader, i want to ask that what was your choice like Stock, Commodity, Option(Index/stock) or Futures etc…. and you still trading ?
    and please suggest… what is the safest trading type in market like ..stock/future/option etc.

    Keep introducing news things and ideas …..
    You’re making futures of Traders by Zerodha Platform.

    • 🙂 Thanks Milan,

      Check this post, has a little on how I used to trade.

      If you are starting off, the most important aspect of trading is risk management. So don’t ever bet more than 3 to 5% of your trading capital on a single trade. The safest way to trade is being non leveraged, that is basically buying stocks in delivery and then selling. Do check this entire section, quite interesting.

  216. Milan Bhogayata says:

    hi Nithin,

    suppose i’m writing option for
    NFO Options
    NIFTY-MAR-15
    CALLS Strike Price – 8800
    Qty : 250

    Premium receivable ?
    Rs: 9,313

    so what is the Maximum Premium can i Receive….
    if Nifty is (8790 or 8800) On Expiry day
    Then How to Calculate my Total Profit After Expiry….
    So My Total Qty is : 250.

    • If you write 8800 calls, whatever premium you shorted will be you profit if Nifty closes below 8800. So in the above case entire Rs 9313 will be profit if Nifty closes below 8800

  217. Milan Bhogayata says:

    Hello Nithin,
    i’m a new trader… currently i’m trading in NIFTY INDEX OPTION CALL/PUT and Earning Rs.500 Daily. so i want to know that suppose i have bought NIFTYMARCH26 CE 8800 AT 104. and Current Price is 47.

    so if my qty is 50. what will be my loss on expiry day ? i want to trade in 1000s qty in future. so i want to clarify it before do it.
    And one more thing…. i’m simply buying OPTION INDEX (NIFTY/BANKNIFTY) CE/PE and sell it same day and getting profit. is option writing is more risky ? i’m very confuse about short call/Long put …etc.
    if i’m writing option and my option is running in loss .. than can i block it anytime or exit from my own option ???? if yes then how …..
    thanks in advance

    • Milan, if on expiry day Nifty is below 8800, you will loose the entire Rs 104 that you had paid to buy this option. So 104 x 50 = Rs 5200 will be lost. Options are very risky and it best to take it easy especially when starting off. We are starting on the Options module on Varsity soon, check this out: http://zerodha.com/varsity/

  218. Neeraj says:

    Hello sir,

    How much minimum cash does it required to trade in options.

    Ex – if NIFTY 8700 PE  is trading at a premium of Rs 110 , I want to buy 1lot then 110 * 25=2750 Rs and my trading a/c have 2750 Rs only, is there any need of additional margin required and can I square off my position at any time before the expiry.

  219. jawahar.trade says:

    Hi
    Greetings, i have few doubts in options and shares please clarify,
    1. can able to convert MIS option PE to normal?
    2. what is the Margin available for option CE and PE (margin based on cash balance right?)?
    3. share bought using NRML type can be hold for how many days?

    thanks

  220. Dipesh says:

    sir,
    One more query regarding options …
    what will happen when i don’t take the opposite trade to square off at expiry for…
    1. OTM write/buy
    2. ITM write/buy
    plzz reply ASAP..
    thank you..

    • If you don’t square off OTM, nothing happens. You get to keep the entire premium that you had received after shorting. For an ITM, all options are exercised, and how much ever the option expires ITM is transferred back to the buyer of the option.

  221. Dipesh says:

    sir,
    I am little confused about option Margin requirement …
    1. The margin required by SPAN calculator is the minimum margin that should always b kept in my account while writing option…?
    Or
    2. there is some trigger amt at which you will call the customer for additional amount to deposit…
    Or
    3. You will call after the margin is swept away to deposit additional amount for continuing..

    and hope you Call your client to deposit additional amount before squaring off..??

    • Dipesh, SPAN is the minimum that you need to have in your trading account to carry forward the position overnight. If the SPAN is not there, exchange puts a penalty. We ask for SPAN+exposure for overnight positions. If the margin drops below the minimum SPAN, you need to transfer more funds to ensure the positions don’t get squared off between 3 to 3.30pm. No, we don’t usually call before squaring off the positions.

  222. nikunj says:

    sir,
    is option writing as easy as option buying?
    i.e. what are the requirements of being an option writer?
    justa demat account?
    If yes ,how do go ahead with option writing?

  223. Gurmeet says:

    Hi Nithin

    I am new to Zerodha and just came across this article. I have been using ICICI Direct for many years. My observations on these 2 trading platforms. Will appreciate if you can clarify:

    1. The margin requirement for option writing in Zerodha is more than that of in ICICI Direct, what is the reason for that. In ICICI Direct it is 8% of the traded value for OTM options.

    2. The MToM is never applied to options (its only to futures) and I don’t think it is a requirement by the exchange. The moment you short an option in ICICI Direct, a trigger price is decided and additional margin is required only when this trigger price is breached. But in Zerodha due to MToM applied on the written options, every day additional margin is blocked for those options.

    Gurmeet

    • Gurmeet,

      1. The margin required to write an option changes with every contract, and it is not as simple as 8% of contract value. We have built a SPAN calculator that shows the margin requirements even before getting into a trade. Check this: https://zerodha.com/margin-calculator/SPAN/ . Btw this margin requirement is as per the exchange. For example 8900 calls shorting requires around 15k, which is much lesser than 8%.

      2. There is nothing like a trigger price is decided in advance. At the end of every day, if the market moves against you the margin requirement for that option automatically goes up, and similarly if market moves in your favor, the margin requirement drops. It is not about Zerodha or ICICI, these things are determined by the exchange.

      • Gurmeet says:

        Hi Nithin, Thanks for the response.
        Let me take an example for a better understanding. This is for my better understanding of the way Zerodha works.

        Nifty 8500PE Apr 2015 Expiry – qty 100

        Margin requirement in Zerodha: ~64,412.
        Margin requirement in ICICI: ~59,500

        Now if the Nifty moves towards 8500, lets say it comes down to 8550 in the next few days.

        In Zerodha: MToM is applied and an extra margin of 8850 – 8550 = 300*100 = 30,000 will be required.
        In ICICI: a trigger price is determined the moment you write this option which is 8450. Extra margin is required only when Nifty moves to 8450 or below that. ie when nifty breaches this trigger price.

        Hope my problem statement is clear to you.

        Since the written communication always has its limitations, Is there a number where can I reach you.

        • Gurmeet, don’t know how ICICI works, but at Zerodha it doesn’t really work the way you have mentioned. If you use our SPAN calculator, you will see that the margins required doesn’t go up incrementally the way you have mentioned. A 8800 Put requires 15100 in margin and a 8900 PE requires 16200, when Nifty is around 8886. So the margin requirement goes up by only Rs 1000 for a put that is 100 points more in the money.

          The thing I have seen with most brokers is that they don’t really have a tool like SPAN calculator, so most of the support staff end up telling some random rule to convince the client. Exchanges use SPAN by Comex to determine margin requirement, our SPAN calculator mirrors that.

  224. Umesh says:

    Dear Mr Nithin,

    I am still to start with writing options I had a query I hope you will be able to answer this.

    The CMP of Nifty is 8661, I write a Deep Out of Money Nifty Call Option say Nifty CE 9300 for Feb series and the margin blocked as per the span calculator comes to Rs 13439/-. Now my que is whether the margin blocked will remain same till Nifty crosses 9300 or will it increase as Nifty approaches 9300 and I have to provide additional margin to hold the position. Please Clarify

    Thanks
    Umesh

  225. Investor says:

    Adding on, the SPAN calculator shows this.

    Is the calculation correct? Am I supposed to deposit over a crore into Zerodha account to get 90,000 premium?

    • Guess you got the answer to your previous question :), yes you need to have 1.5 crores to pocket 90k in premium. Around 0.6% return for 10 days, still quite good considering the minimal risk. The buyers are people who are either covering their shorts (if OI is decreasing) or if OI is increasing would mean people trying to hit a lottery.

  226. Investor says:

    Hi,

    NIFTY is at 8700 now, and still 7700 Put option of 29th Jan has 3 Rs premium. Is it not an easy “sell” and pocket the premuim? Or am I missing something here? Can we simply sell 3000 puts and pocket 90000Rs – its OI seems to suggest it can take that volume.

    Of course, the risk begins ONLY if NIFTY slides down by over 1000 points in 5 trading sessions.

    On the contrary, also curious to know who are the buyers of this PUT yet?

  227. jawahar says:

    Hi,
    I’m new to Options, please clarify the following doubts,

    1. can I hold options bought using NRML as product type in overnight?, how long i can hold that options?
    example: 8400PE jan 29 Expiry, bought on 20th Jan

    2. Can i buy options less than 25 in qty (normal lot size is 25)?

    3. how to sell the options which i bought (kindly please explain in step by step, i’m using zerodha web platform)?

    4. is options are liquid as stock group A?

    • 1. Yes, and u can hold till 3.30pm on 29th Jan the expiry day.
      2. No, only in multiples of 25
      3. The way you bought, same way place a sell order for the quantity and price.
      4. Yes, Nifty options are the most liquid instruments in the market.

  228. jawahar says:

    Hi,
    I’m new to Options, please clarify the following doubts,

    1. can I hold options bought using NRML as product type in overnight?, how long i can hold that options?
    example: 8400PE jan 29 Expiry, bought on 20th Jan

    2. Can i buy options less than 25 in qty (normal lot size is 25)?

    3. how to sell the options which i bought (kindly please explain in step by step, i’m using zerodha web platform)?

    4. is options are liquid as stock group A?

  229. Kunal says:

    Hi Nithin,

    Are these regulations same for Institutional investors as well ? May be simple statistic of Retail vs Institutional Open Interest can point it out. Retail investor will stay away from options industry as one needs big pockets. I mean you are in better position to comment on statistics.

    • The margin requirements are same for everyone, it is set by the exchange. There are a lot of things debatable in this business 🙂

      • Kunal says:

        You rightly said that there are lot of things debatable in this business 😀 😀 😀 !!! and of course social forum is not right place for such debates 🙂 …
        Being a CEO and still responding to all queries is big thing that you are doing !! Great work !!

  230. Kunal says:

    Hello Nithin,

    You are doing great job by answering so many user queries. I have tried searching lot on SPAN and there is not much clear information available which can explain how SPAN works. I guess one has to experience SPAN by trading only and such experiences are quiet expensive 🙂

    I have following doubts regarding SPAN and Exposure margin as I was testing few scenarios.
    For NIFTY Short Strangle Position : Sell OTM – Mar-15 : Put 7500 & Call 9200

    1. Exposure margin is calculated twice which is big blow to retail investor as it blocks great amount of capital.
    2. SPAN requirement of each leg is added while doing margin calculation. This is another step where significant capital is blocked. Shouldn’t this be highest SPAN requirement out of 2 legs ?

    NIFTY is cash settled and European index so why margin is blocked for each side of short leg when only one condition can be true at expiry. There is no exercise before expiry so no risk of early assignment.

    I read your comments above regarding concern that trader may square of 1 leg of position leaving other short position open. Hence you calculate margin for sell side. However SPAN software which I believe runs multiple times on a day on entire portfolio should be able to catch such situation almost realtime or at end of day.
    Shouldn’t SPAN which is designed to access risk of entire portfolio to reduce margin requirement ?

    My point is that for spread and strange, investors are not getting real benefit of SPAN by reducing margin requirement based on risk level.

    Can you please comment on this.

    Thanks,
    Kunal.

    • Kunal, firstly what brokers block is basically what exchanges asks us to block. So yeah, as a trader for so many years, I have always wondered the conservative approach exchanges take in this regard. I guess you have checked our SPAN calculator, the values that this return for various strategies are as per the exchange. You can blame them for this, but on the flip side because of their conservative approach we have never had a default on NSE, even when we had probably the most horrid times in 2008.

  231. Arun says:

    Hi Nitin,
    Today Jan 2, 2015, Bank Nifty call options strike price 19500, traded volume (contracts) is 24,696, does it mean only 24,696 UNITS are traded in the market? so volume contracts mean number of units?
    I am asking this just to know what is the liquidity in Bank Nifty options if I want to trade in huge volumes….Kindly advice!

  232. manju says:

    Sorry man if i am posting this again. How about selling options intraday using cover orders as an alternative to buying advantage being the rangebound markets. Just Intraday.

    • Yes you can Manju for intraday.

      • manju says:

        Yes i know i can 🙂 I wanted to know your take on the idea of doing it. Normally shorting options is deemed riskier primarily bcoz of the reason that at expiry if youre on the wrong side,youll lose a lot. Is there anything else that makes shorting riskier than buying?

        My idea is to use shorting using cover orders as a better alternative to buying(Normal product type) so that you dont need to worry about listless rangebound markets. Margin required may be higher than buying even if cover orders are used but thats the maximum we can go. Is it a good idea?

        • Manju, Option writing has definitely better odds of winning compared to buying options, even if it is for intraday. Typically time value keeps reducing even during intraday and hence you benefit as an option writer. The only tricky thing is, if the volatility picks up, option premiums can suddenly shoot up. So short options when you think markets won’t be too volatile and buy options if you think otherwise,even for intraday.

  233. vinay says:

    Hi,

    I am holding some put options (dec 2014 expiry).

    As i dont know much about option trading , please answer my question.

    What happens if dont sell these put options before the expiry??

    will they get squared off automatically??

    please explain.

    Thank you,
    Vinay Rg
    RV0794.

  234. Arun says:

    Hi Nitin,
    While trading in OPtions (Nifty or Bank Nifty), where can I see the underlying? It is very difficult to track and know what is happening to the underlying, also there are no chart options for Nifty, bank nifty etc? how can we make strategies? Kindly advice!

    Arun

    • Arun, you can add the index in the index box on the top right. Use the Ctrl+I shortcut key to enable/disable the index box. In our new platform Pi, we have options to look at index chart as well.

  235. gerald says:

    dear sir
    I am Gerald from Hyderabad
    do you teach how to trade the calendar spread . if you could you guide
    I am looking for an 8 to 10% pm and was this was a risk free
    Hoping to hear from you
    my email address in [email protected]

    • Gerald, finding opportunities in calendar spread is quite tough considering there are a lot of computers playing the arbitrage game. Even if you spotted opportunities, a good year will probably yield you a maximum of 20% (there is no way you can earn 8 to 10% per month trading calendar spreads).

  236. swapnil says:

    Dear Nitin,

    In today’s trade SBI is up by 5.53% closed at 2942 with previous close was 2787.
    Today it’s 2900CE was up by 276%
    Suppose instead of up SBI is down by 5.53% what will be the 2900CE & 2700PE closing price for today.
    Thanks,
    Swapnil.

  237. Arun says:

    Hi Nitin,
    I tried to place an order to buy Nifty Call options 30000 units, but it got rejected with below message?
    “RMS:Rule: Check freeze quantity for FO including square off order,Current:30000, limit set:10001 for entity account-DPxxx (I removed the DP number) across exchange across segment across product”,
    Why is it set for only 10001. What is the reason, can retail investors trade beyond certain units in F&O?
    Kindly advice!
    Arun

    • Arun, exchange has put a limit on maximum order size. So for Nifty it is 10000, if you want to buy more than that you need to do it in multiple orders. So 10,000 3 times will get you to 30,000.

  238. M ANANTHA RAMAN says:

    If I am writing a call option in currency what will be the margin amount will be hold by you assuming that rupee trading at 60. for ATM, ITM and OTM it will be same or varries.

  239. HAWWA.A.H.HANJARA says:

    Dear Sir,

    The spread order tool is a highly significant tool for strategic traders like us.
    We can make margin benefit through it.
    Moreover we can calculate our maximum risk of loss before entering.
    To put it in simple terms, as in Modi governance less government more governance is enhanced, likewise in Spread orders, less margin requirement more trading oppurtunities is enhanced.

    I want to get some clarifications regarding it.
    Through your articles i do understand that spread over entries will not get displayed in general order book and we can check our entries in spread order report. Yesterday i made a spread order entry, in spread order report it showed that the transactions got executed in completed orders coloumns. So i thought the order had took over, but when checked in back office report yesterday in open position coloumn those transactions are not there. So how do i know whether the transaction had got executed or not.

    In order to get it clarified Yesterday(3rd november 2014) i called zerodha customer care, it kept on ringing, nobody to answer. then i contacted the sales number, the representative said, there was a problem with that line but now got resolved. I kept on trying but still its ringing nobody to answer. Please for customers convinience, pls provide us with alternative number for call and trade section. Hope u will consider.

    Regards,
    Hawwa.

    • Our IVR lines crashed yesterday, which caused this problem. We are working on ensuring that it doesn’t repeat. Will get someone to call you back.

      • HAWWA.A.H.HANJARA says:

        Thank u for ur speedy response.
        Please provide me the information of Spread order report sir as mentioned in my previous query.

        Thanking You.
        Regards,
        Hawwa.

  240. Pradeep says:

    Hi Nitin,

    for options writing whether the margin will be automatically allocated from my trading account or do I have to manually allocate to the margin account?

    regards,

    Pradeep.

  241. Kris says:

    Hello Nithin,

    What if there is no buyer for a contract(OTM) that I want to short at market value? Will my trade be executed or will it be in open state till any buyer is assigned? If my trade is executed immediately then who is paying the contract premium to me?
    Also what will happen if there is no buyer till expiry? Will my OTM position be exercised at zero price?

    Another way of putting it – If there is no volume on options I want to buy/sell?

    • If there is no buyer, you can’t short and your market order gets cancelled. You can place a limit selling order and hope someone buys it from you at that price.

      So if you have shorted and liquidity dries up, it is a very tricky situation to be in, you can’t do nothing. If market is moving in your favor there is no issue, but if it goes against you the only thing you will be able to do is to take position in another contract to hedge this risk. On the expiry day, if your option is OTM, then of course it expires at 0.

  242. Arun says:

    Hi Nithin,
    Thanks for your knowledge sharing….
    I am new to options trading, I have few questions:
    can I buy large amount of call options? say 7000 Nifty calls (7000/50 = 140 contracts) and sell it at increase of 5 to 6 points of premium? Do I get buyers for this huge amount of call contracts? is it profitable?
    Or Is it advisable to buy only 200 calls (200/50 = 4 contracts) and wait for increase of more premium?
    Kindly advise!
    Arun

    • 1. Yes you can.
      2. Nifty options contribute over 50% of turnover, you will always get buyers/sellers for much larger quantities than what you are talking about. But if you are trading stock options, be vary of the liquidity.

  243. M Anantha Raman says:

    I want to initiate a calendar spread strategy in Nov 2014. Assuming at that time nifty is trading at 8015. I decided to short sell the Nov 8000 CALL at 57 and BUY 8000 call options at 160 to create a calendar spread. My pay off diagram is as attached. In this you can see that maximum gain is around is 40 but the loss is around 100. How can improve this so that I can get gain is more and loss is less. If possible can you please walk me through this strategy step by step including steps to exit the strategy.

    • Little confused with your strategy, you are thinking of shorting Nov 8000 Calls at 57 and buying Dec 8000 calls at 160?

      • M Anantha Raman says:

        Yes Exactly.

        • You intend to hold this till end of December or until end of Nov? Because if it is till end of Dec, your payoff diagram is not right. Nifty could close Nov at 8150, loose you 100 points and then drop below 8000 in Dec to loose you the 160 on long calls, potentially losing you 260 points.

          If you are holding till NOV expiry, there is no way to increase your risk to reward using this strategy. What you haven’t considered in the payoff is that volatility for Nov calls might go up and since December typically is a low volatility month, it could drop for Dec. So Nov calls might go up, whereas Dec calls may not go up as much. This again will hurt your strategy.

  244. naveen e says:

    This month only i started trading in option i got it what is call and put but i want to know about short selling of call.
    my question is
    1.kya sabhi ka premium value zero ho jata hai end of the month last thrusday ko to isme risk kaha hai.
    2. agar sabhi ka premium value zero ho jata hai aur mai short sell karta hu call option 15 sep ko last thrusday 30 oct hai but mai 26 ya 27 oct to buy back karta hu to profit ho ga kya isme.
    3. maine month starting me ntpc current 140 hai abhi.. call option strike price 140 liya hai premium 5 rs me buy kiya … if ntpc upper jata hai 145 last week me to kya premium badega last week me monday tuesday or wednesday me k kam hoga .
    .

    • 1. Only the options which are out of money on expiry will be 0. So if Nifty closes at 8000, 7900 Call will close at 100, and 8000 call will close at 0. 8200 puts will close at 200.
      2. Yes, you can short and buy back immediately or anytime before the expiry day.
      3. If you have bought 1st week of the month for Rs 5 and if NTPC is still at 140 at the end of the month, the premium would have already dropped below 5. If NTPC starts going above 140 and goes to 145 in the last week, it will definitely go above Rs 5.

  245. sachin jadhav says:

    very nice.now i want to know about arbitrage.plz let me know.

  246. Siva9 says:

    Hi Nithin,

    I joined recently as a trader in ZERODHA, One day I called to technical team regarding to take the help for trading tool … they helped me very well to understand the things and they suggested me to visit the ZCONNET to gain knowledge. I had a doubt regarding options from past 2 years how it works actually …. today I registered in ZCONNECT and found the article for options …. I read it and gained knowledge about options … I felt very happy because I spent 1hr on this …. earlier I read some books and spent many hrs.’ in internet to understand about the options but not able to gain knowledge.

    Expecting many articles from you.

    Many thanks to you,
    Siva.

  247. AHS says:

    I sold L&T finance 80 rs call at 0.20 p premium one lot of 4000, one day before the expiry, the underlying closing price is 67which means I am still in the money, the brokerage is blocking around 40000 why is so

  248. Varun Jain says:

    Hi ,
    Nithin Sir. Appreciate your help.
    I am new to options writing and want to know regarding OTM options expiring worthless

    1. If i have sold 7850 PE & 8050 Call at combiined premium of say 5 & at expiry it is expiring worthless ( i.e 0) should I square-off it say at 5 paise or 10 paise OR else i should not square off & keep as it.

    2. In this case , what will be the brokerage and STT implications as I have not buy it ?

    Thanks

    • 1. You need not square it off at 0.05 or 0.1, you could just let it expire worthless. But if you need that margin to be unblocked which is being used for the short options to take fresh positions, you will have to.

      2. No, if you let it expire, no brokerage or no STT.

  249. Anantha raman says:

    What is the diff between nest intra day chart and plus intra day chart. Also historical chart.

    • Plus intraday chart comes with 20 days of intraday historical chart, whereas NEST intraday has only for that particular day. Historical chart gives daily chart for the last few years.

      • anirban says:

        Hi,
        I am new to options and zerodha trading platform. My query is if I sell a put option of Rs. 980.00 of say reliance trading at 1000 and prior to expiry reliance goes to 980.00 then am I to own that many shares of reliance as represented by one lot of rel option or I have to cover with loss?

        • Anirban, in India all futures and options are cash settled, so you don’t ever have to give or take stocks. So if you are short 980 puts at say Rs 5, and reliance drops from 1000 to 980, the value of puts might go up from Rs 5 to Rs 7. Since you are short, this Rs 2 increase would be your notional loss. So you can either buy back the option at Rs 7 to book this loss or else hold it till expiry. At the end of expiry, if Reliance is at 980 or any value over 980, the value of 980 puts will become 0 giving you Rs 5 ( x lot size) as profits.

  250. dhaval says:

    hey nikhil my stretagy works i have made 50 points profit in call and put selling of 7800 call and put both i have sell on 28 july and square up my position yesterday.
    i am happy

    • ragendth says:

      Hi Dhaval I am new inot this options trading can you let me know the strategy so that I can also try out. Thanks in advance

      • dhaval says:

        thanks for watching my stretegy. i am only see that if we sell call and put both at a current nifty rate price, we will get minimum 40 to 50 point profit in new months first week..
        hear i am expening you how you earn.
        i have make a position of august months call put same strick price in july last day expiry that day nifty trades at 7830 and i have sell 7800 call and 7800 put at 120 and 125 rate.
        so my total is 245 points and after august one week when i see nifty its price is 7679 and my position profit is 200 points total so i have made 45 points profit in only one position with same strick price call put selling.
        because of time peried.
        see every month last expiry days nifty spote price and sell its call and put of same strike price. example if on expiry nifty is at 7900 so you have to sell 7900 call and 7900 put of next month and squar of your position after one week no have to wait. more and you will definatly get profit.
        this is i am thinking and i am working so i do this stretage if you like it than. do it………….. and thank you. for watching my stretagy

  251. Anantha raman says:

    For initiating bull call spread can I buy call today and sell call after two days or it has to be done at the same time.and does it will be considered as two trades.?

  252. subclt says:

    Dear Nithin
    The option premium of the August contract is very low when compared to the previous month,even first day itself of this contract.For example Nifty 8000 call is at 12.65 and 7200 put is at 15.60.(400 points away from the .nifty).May I know reason sir

  253. arm239 says:

    Dear Nikhil,
    for creating bull call spread which chart I should see the nifty spot, nifty futire or the option chart?

  254. i want to buy wipro put of august 540 at 12. i thing it will be double in august month. whats your view on it

    • Dhaval, we don’t discuss anything stock specific or trying to call direction of the markets.

      • dhaval says:

        ok no problem so we are only talk about stretageys right? about option.
        thank you again because no one till today gives answer about this. but you will all your viewer their questions answers. thanks again

  255. arm239 says:

    Dear Nikhil,
    Suppose I want to place a bull call spread strategy on nifty trading at say 7790. I am buying CALL 7750 @55.20 which I am keeping fixed and tried SELLING CALL at different strikes as below.
    1 selling 7850 @ 11.95 my profit is approx. 54 and loss is 42
    2. selling 7900 @ 5.80 my profit is 100 and loss is 50
    3. selling 7950 @ 2.70 my profit is 150 and loss is 50.

    What it indicates the far the strike you sell the more profit. am I correct? If I want to choose a BEST SELL strike HOW WILL I DO?
    For this example I am taking the data from OPTION ORACLE software.

    • The idea of shorting the OTM call is to basically be able to hedge your long call position. The problem with shorting a deep OTM option is that you are hedged only to the extent of Rs 2.7, whereas shorting 7850, you are hedged until 11.95. What this means is that if market goes against you, (starts going down), the 55.2 you have paid, you will loose only around 43 in case you have shorted 7850 call, but you will loose Rs 53 in case you have shorted 7950 call.

      Which strike you want to choose will depend on your strategy, if the idea is to hedge, there is no point shorting 7950 call to reduce your risk by just Rs 2.

  256. dhaval says:

    if i sell at the money call and put of next month today. what do your view on that price? are they give me profit in next 10 days. because of time dekay?

    • Dhaval, time decay is only one aspect of option writing, but value of option going down also depends on volatility. If volatility picks up, both the premiums can go up, even when there is a time decay. But yeah, this is relatively a safe strategy, but if market moves in one direction very fast, it can still cause you a loss.

  257. arm239 says:

    Dear Nithin,
    in selling a put option if due to sudden fall of any stock or nifty if the put value becomes ZERO BEFORE expiration,will I be assigned the stock or nifty the number of lot I sold initially ?

    • The good thing(some say bad 🙂 ) with trading options in India are that all are European and everything is cash settled. What this means is that the buyer of an option can exercise only on the last day of expiry and even if he does, whatever is the difference is settled in cash.

      • Anantha raman says:

        Can u pl elaborate. I did not understand your answer

        • Assume you shorted 7500 puts @Rs 50 on Nifty and Nifty tanked to 7000. Assume now that the liquidity in this contract becomes zero (i.e no buyers or sellers), remember that if stock/index falls, put value will increase it will never become zero. The buyer of this option is seeing a lot of money ( 50 has become 5000) but he can’t exit it as there are no buyers on this contract.
          First thing you need to understand is that in India all options are settled in cash. So as a person shorting option contracts, you never have to worry about either taking delivery or giving delivery of stock if assigned. If you are assigned, you have to pay the buyer of the option difference in money from the strike to the current closing price.
          Also all options in India today are european, what this means is that the buyer can exercise this option only on the last day of expiry.
          So in the above example, if on the last thursday Nifty closes at 7000, you as a person who has shorted 7500 puts is compulsorily assigned, and you have to pay back 500 to the person who has bought the option ( net loss of 450 = 500 – 50).

          Hopefully clarifies

  258. Ravi Kiran says:

    Dear Nithin,

    Why Zerodha is not offering to trade in weekly options?

  259. swapnil says:

    Dear Nitin,

    Please guide what will happen in below case
    If I short 2 Maruti call 2650 and at the expiry if Maruti is below 2650. option price on expiry is say Rs.1
    I want to close my position and want to buy at Rs.1 but seller want to sell at 3.
    How the trade will take place?

    Thanks,
    Swapnil.

    • Swapnil, if you have shorted 2650 Calls and if stock price of Maruti is below 2650, you can let your options expire, because you will get to keep the entire premium as profits. There is a problem with stock options because of liquidity, if you want to exit you might not get the best price on the exchange.

      But if you want to exit at 1 and the seller is at 3, the trade won’t go through.

  260. subclt says:

    Please guide me if anybody conducting GENUINE class teaching about option writing,delta hedging,Greeks and so on…

  261. Sumanth says:

    Mr Nithin,

    I’m a retail trader who always trades in options and i came cross something called option Greeks. Is there any blog which is been posted from your side for info about that. Maybe posting one would help many to understand it on the software and also on paper.

    Thanks,

  262. arm239 says:

    I have forgotten if I have already registered for NEST plus. when I tried to register again it says that with the same mobile number registration is not possible. Can u help please.

  263. swapnil says:

    Dear Nitin,

    How to calculate delta,gamma, theta,vega values of nifty options?
    From where I will get inputs like Interest Rate,Volatility,Dividend Yield for nifty options?

    Regards,
    Swapnil

    • You need to use Black Scholes for calculating greeks. You should get your other inputs from here: http://www.nseindia.com/products/content/equities/indices/historical_pepb.htm#

      • swapnil says:

        Dear Nitin,
        I got values for volatility & divident yield. Thanks. 🙂
        But can’t find for Interest rate Please help me to find this input.

        • You can use the RBI reference rate which will be available on the RBI website.

          • swapnil says:

            Thank you for the information.
            I have searched on this link “https://www.ccilindia.com/IRSS_HOME.aspx”
            it’s showing 8.334

        • ragendth says:

          Hi Nithin ,

          So is it possible to get a rough premium value of the option for the next day by putting in these values. From the site “http://www.nseindia.com/products/content/equities/indices/historical_pepb.htm”. I am not seeing any volatility%. But when I put the below values in “http://www.option-price.com/implied-volatility.php”. I got the volatilty as 18. I would like to know if i am doing it correct. Pls correct me if I am wrong

          Calculate Implied Volatility for 14800 Put Option 28-aug-14

          Underlying Price =14700
          Exercise Price =14800
          Days Until Expiration =19
          Interest Rate =8.3
          Dividend Yield =1.34
          Market Price =265

          Implied Volatility = 18 %

          Then putting these same values in option calculator I got Below values. So what i guess is the premium for the 14800 Put Option 28-aug-14 would be around 278 Rs?

          Put Option
          Theoretical Price 278.321
          Delta -0.52
          Gamma 0.001
          Gamma 1% 1.351
          Vega 13.363
          Theta -4.88

  264. arm239 says:

    Hi
    Does Zerodha platform has strategy builder as part of the trading platform or it is separate . Is there any tutorials available at your site using them.

  265. subclt says:

    HI Nithin

    What are the important factors to be considered when writing the nifty options?

    • Assuming you already have a trading strategy in place, what is the most important factor is to contain risk. Since option writing can cause unlimited losses, you need to have a sound risk management strategy, a plan on what you will do if things went wrong.

      What trading strategy you use, is quite a broad topic and don’t think can fit it into one answer.

  266. projjwal says:

    Hi,
    If i write an option, should i buy it at expiry date @0.05 or it will be automatically get squared off on the expiry date?

  267. gaurav says:

    Hi Nitin,

    Just wanna ask is there call and put option in desktop platform

  268. HAWWA.A.H.HANJARA says:

    Hi,
    While shorting options, if after placing buy order on f&o expiry day, if there are no sellers or the values of buying rate and selling rate are very heavy, then wat to do. if v kept that order open to b square off by exchange at wat rate will they square off and were do i get the details as to at wat rate it got bought?

    • All options are settled to the value of the underlying, so if you have shorted Nifty 7000 calls and Nifty closes at 7493, your calls will be assigned at Rs 493( 7493-7000). Similarly if you had shorted 7700 puts it will be assigned at 207 (7700-7493)

  269. subclt says:

    Hi Nithin
    part of my strategy I used to write both call and put at same value in every morning meant for intra day ( for example say if nifty in 7500,write the 7600 call at 40 and 7400 put at 40. so the the total value will be 80).some days total value is decreasing and getting profit but some days total value will increasing and end up in loss even if nifty in range bound time also.I could not understand this process.please help me.Thanks

    • yashjhaveri1 says:

      Hi Subcit,

      Shorting both Calls and Puts is inherently a risky strategy! (you are betting on the market staying stagnant i.e non volatile) Even if the market remains stagnant – the daily profit earned is very small.

      as a simple rule the price of an option is made up by 2 elements : Intrinsic Value + Time Value

      (The price of an option is effected by :
      a) Change in Value of the underlying
      b) Interest Rate change
      c) Changes in Volatility
      d) Time to Expiration

      in your example if the intrinsic value of the call option is Rs. 35 therefore it has a time value of Rs. 5 (Rs 40 being total vlaue – Rs 35 being intrinsic value)
      Also, assuming there are 10 trading days to expiration.

      As a thumb rule you can assume that Rs. 0.50 (Rs. 5 / 10 trading days) will be be the DAILY decay in time value. (for getting the exactly decay value for a day – use black scholes options calculator)

      Again since the Total Option value consists of 2 elements : Intrinsic Value + Time Value.

      The instrinsic value is determined by the underlying
      eg. in case of call the instrinsic value is the Maximum of
      – (Underlying Spot price – Strike Price),
      – ZERO.

      and the decay (Reduction) in time value will be Rs. 0.50 at the end of every trading day.

      But Note :
      1) if during the trading day volatility increases (the options value would increase)
      2) if there is any change in interest rate announced the price of the option would increase / decrease
      even if there is no change in price of the underlying on that particular day.

      Also, if during the day if the Value of the underlying remains unchanged,
      you get a profit of Rs. 0.50 on the call option + Rs. 0.50 on the Put option (assuming the DAILY decay of time value of put option is also Rs. 0.50 per day)
      Thus a total profit of Rs. 1.00………….THIS STRATEGY IS REALLY RISKY TO ACHIEVE THIS “LOW PROBABILTY” OF “SMALL” PROFIT

      Que : You must be wondering who would be on the selling side of options (if it is so risky)
      Ans : its usually traders who have set up a hedging strategy

      Hope this helps!

      Yash J

  270. yashjhaveri1 says:

    Hi Nithin,

    As a part of my hedging strategy….i am planning to Short Nifty call option (Strike 6800) of July contract @ Rs. 800/-, THIS IS AN ILLIQUID OPTION…There are buyers available at this prices (Rs. 800 is the bid price),

    My question is regarding the M2M for illiquid options,
    What if liquidity for these options completely dires up? so that there are no trades during the day, no LTP, no Bid or Ask….etc..

    How is the M2M in such a case determined??
    While i had short the option @ Rs. 800/- but when liquidity completely dries up, what rate would the exchange take to make M2M adjustments

    Thanks,
    Yash J

  271. HAWWA.A.H.HANJARA says:

    Today Bharti airtel futures span margin is Rs.41812.
    If i want to short bharti airtel option and if i have 42000 in my account. Is it enough or extra margin is needed while shorting options?

  272. HAWWA.A.H.HANJARA says:

    bo2,zerodha.com is very easy for understanding calculations

  273. HAWWA.A.H.HANJARA says:

    Thanks

  274. HAWWA.A.H.HANJARA says:

    Nithin,

    If i short tata motors 420 call option at a premium amount of 16,one lot while it was 417.3.
    Another lot of 420 call option at a premium of 19.45, while tatamotors is 430.
    Now currently it closed around 454. Last traded price is 35.
    Whether v have to calculate loss with option last traded price or with tata motors cmp?

    • Your current loss is based on the current price of the option which is Rs 35, after expiry (last thursday of the month), you can calculate loss based on the CMP of the underlying stock. Login to bo2.zerodha.com and check for open positions, this calculation would already have been done for you.

  275. subclt says:

    Dear NITHIN

    Now India vix is showing 1678,this one is the right time for option writing?

  276. subclt says:

    Dear Nithin some body wrote this following comment in this blog on some times before

    jojutv

    It is informative.In addition, let me make some comments about the vega effect on the premium of options, essentially it has crucial role on the premieum of an option.Simple method is that just watch India vix, if the value of indiavix is positive 100% sure the premieum has inflated and if it is negative premium of option also must have reducecd.Keep watch and make sure this piece of information is important

    Could you please elaborate this comment.Because I am newbee to the option writing.And indiavix positive 100%——- got me confused.How to check indiavix percentage– by intraday basis or contract basis?how to relate this one with the option writing?

    • Little confused myself on what Joju was trying to say, but if you are an option writer the best times to write options is if IndiaVIX is on the lower end of the range, check this post on IndiaVIX. The range of VIX historically has been between 12 to around 60. If you are writing options when VIX is trending up or on a higher end of the range, technically there is more volatility expected and hence not the best time to write.

  277. srinivasr says:

    Hi Nithin,

    I have couple of questions.
    1. How do i enable bracket trading in Zerodha?
    2. Does Zeordha Provides any BTST or STBT to trade stocks?

  278. Rajesh says:

    Nithin, Icici direct offers an option plus product where the margin requirement for writing options is very less. But there a SLTP order is mandatory when you write options and there should be sufficient funds in the A/C to meet the losses in case the SLTP is triggered. Why not zerodha introduce that kind of a product?

  279. swapnil says:

    Dear Nitin,
    I have following questions which are really frustrating me. Please help.

    1) what is square off and exercise of the option?
    2) What is the meaning of assignment?
    3) What is cash settlement and stock settlement?
    4) Suppose I short 1 Reliance call option 990CE Lot size 250 spot price 970 @ expiry it is ITM and the buyer want a stock settlement then how much it costs to me for a stock settlement.? How this stock settlement works?
    5) For Nifty is it a cash settlement or stock settlement?

    Please help me to clarify this doubts.

    • 1. Square off is when you exit the option position that you are already holding. All options in India are cash settled and European(which means you can exercise them only on the expiry day). So in the Indian context, if you don’t square off your buy option positions until the expiry day, after expiry the option is considered exercised. So if Nifty on expiry day is 6950 and you are holding 6900 calls which you don’t square off in the market. This option is considered exercised and after 3.30pm, the position is cash settled and you get back Rs 2500 (50 x 50).

      2. In the indian context there is no assignment anymore in the pure terms. But generally what assignment means is that if you have bought call options and I have shorted call options, if you decide to exercise the call option (right to buy), I might get assigned and have to deliver the stock to you. But as I said, in India all options are cash settled and there is no concept of assignment.

      3. Cash settlement is when you exercise or at end of expiry you get back cash, if you get stock it is called stock settlement.

      4. As I said there is no stock settlement, if you short 990CE and on expiry day you will have to give back only if Reliance is above 990, if reliance closes below 990 u don’t have to give back anything.

      5. Same cash settlement

      I’d advise you to read the modules on derivatives available on the NSE site. Click this link

      • swapnil says:

        Dear Nitin,

        Thank you for your reply and clarifying my doubts. say if I short reliance for strike price of 990 and at expiry it closes at 1050 means my loss will be (1050-990)*lot size=60*250= 15000. Right?
        There is no chance of stock settlement, but a buyer want an stock settlement then what is my maximum loss? Is it 1050*250= 262500 or still 15000?

        Thanks,
        Swapnil.

        • Yes, on expiry if reliance closes at 1050, you will have to give back Rs 15000, but note that when you have shorted there would be a certain premium credited to you. So assume you shorted when the calls were at Rs 30, and since it closed at 60, your net loss would be only 30 * 250 = 7500.

          There in nothing called buyer wants stock settlement, when you short options the risk is unlimited, so for example if Reliance goes to Rs 2000, you will end up losing 1010 * 250.

  280. Sandip_Chougale says:

    Thank you very much for in detail answers. Need answers of below. Thanks in advance.
    1) Which Currency market is having more trading volume out of NSE, BSE and MCX-SX?
    2) Where can I get Historical charts of Currency? Also suggest website.
    3) Where can I get live market charts?
    4) Is Currency live market charts available in Zerodha software?

  281. Sandip_Chougale says:

    Please answer to my below few questions –
    1) Is INDIAN people allowed to trade in FOREX market?
    2) If yes then Is Zerodha provide such facility? or Suggest any other Broker.
    3) I want to start trading in Currency but my Job timing is 9am to 6 pm. Is it possible to trade in Indian Currency market after 6 pm?
    4) What is minimum Margin required for trade in Indian Currency market for USDINR or any other pair.
    5) Where Can I get basics of Currency market which can be used for Indian market?

  282. Kris says:

    Can you give some stats of profit/loss in nifty call/put option writing in case of ITM(in the money).

  283. JS says:

    I am interested in writing options on nifty. Pls advise how I can get started with Zerodha. I need to clarify a few things before I can begin – is there someone I can contact in this regard?

    • It is quite simple actually, and every client of ours is already enabled to short options. You can ask all your doubts here, will be happy to answer.

      • JS says:

        You recommend shorting OTM options but the returns seem to be lesser than bank FD interest (because of margin requirements).

        Do you recommend any specific strategy (how far the strike price, how far the expiry, etc) for shorting Nifty OTM options that can consistently beat bank FD returns (benchmark) factoring the margin required?

        • JS, I guess you are not doing your math right, if you are able to pocket Rs 20 (Rs 1000 per lot) in OTM options for Nifty for every 25000 invested that is a return of 4% a month and 48% annualized more than 4 times of what a bank FD makes. I will not be able to comment on any strategy as such, the post is an idea to initiate a trader to option writing.

          • JS says:

            Fiddled around with numbers in https://zerodha.com/margin-calculator/SPAN

            Date: 22 Apr 2014
            Exchange: NFO
            Product: Options
            Symbol: NIFTY 26-JUN-14
            Option Type: Puts
            Qty: 50
            Buy or Sell: Sell/Write
            Strike Price: 6100 (~ 200 day SMA)
            ———————————————-
            Premium receivable: Rs. 128
            Total Margin: Rs. 20,651
            ———————————————-
            ROI: 0.62% over 2 month period

            How did you come up with 4% a month? can you show me your inputs?

  284. DC0267 says:

    hi nitin sir
    maine call put writing ke bare main apne office ke logon ko batya he was intrasted but wo mujhe bole mera account open kara ke jo trade hai tum karo end of the 3 month profit share kar lo becz tumne trade kiya hai loss ho to cover kar ke dena (hume option writing jada samajh nahi ata office k logo ne bola)
    kya yea posibale hai ki 4-5 parson ke account main unke zpin k sath call and trade kar sakta hue
    kuch month k bad main yea log badh bhi sakte hai ager yea kam acha chala to main full time karne k leya soch raha hue
    is par apka sugation kya hai sir

  285. coolblr says:

    Well, was going through some posts on tradingqna and came across this: http://tradingqna.com/615/options-tuesday-bought-options-immediately-charged-penalty

    Any chance of hitting this kind of situation when I have availed margins against collateral?

    Cheers?

  286. coolblr says:

    @Nithin, do you give margins against Tax free bonds in the demat account?

  287. harii says:

    Hi,
    I have question on MTM. In case you write an option let’s say 6600 CE and cover it by buying an option lets say 6700CE. will I still need to pay the MTM in case the market continues to rise or can it be off set with the increase in the buy option which is bought.

    • Hari,

      The value of your buy option position doesn’t really get added to your account balance, and hence it can’t be used for MTM of the short option where you are losing money. But as an RMS team, we are usually considerate with such hedged positions, and give extra time for you to bring in the MTM losses. But if the margin reduces by the minimum required (SPAN) as per the exchange on your short option, there would be an exchange penalty levied.

      • yashjhaveri1 says:

        Hi Nithin!

        In Continuation with Harli’s question,
        Can you please let us know what is the penalty that would be levied by the exchange
        (in % or absolute terms) , Also would a broker charge interest on Dr margin Balances?

        Can a broker provide additional margin by taking collateral of the Long Option (which has gained in value) to offset the margin required by the Short Option position.

        Lastly, incase i have an equity position in RIL (which is my long term investment),
        Can i use this equity position as collateral & make any trade to earn a Risk Free rate of interest.
        (what is the interest you charge for loan against collateral of equity shares?)

        thanks!

        • Penalty is around 1% of the margin which is short than minimum required on a daily basis. It is pretty high, and it is just not about the quantum of penalty, this is considered being uncompliant.

          Long option value is not credited until you have exited, and even when you exit it gets credited only T+1 day, so no can’t be taken.

          Yes you can pledge your stocks, and get a margin after haircut. This comes with no interest, and you can use it to trade F&O positions. You just need to maintain some cash for any MTM obligations.

          Unlike other brokerages, when you pledge with us, we directly pledge with NSE and don’t take it on our books and give you a loan at an interest (another advantage of trading @ Zerodha 🙂 ). So there is no cost for the collateral margin that will be provided on your stocks.

          • yashjhaveri1 says:

            Thank you Nithin!!

            That means i can pledge my stock & Recieve an INTEREST FREE margin (after a haircut)….

            With this margin Can i make all trades in F&O (long Options + Short Options + Long Futures + Short Futures)??…i believe my current broker dosent allow me to go long options with the collateral margin.

            Also, what would be the haircut applied for RIL Equity?

            Thanks again :)!

            Yash J

  288. coolblr says:

    @Nithin, seems like its quite complicated to convert offline MF into demat and vice versa (I did call up Siva and even for him it was new). I have few questions related to Liquidbees (The return on Liquidbees is really pathetic compared to other liquid funds, but anyhow), it would be great if you can clarify the same.

    1. The margin given on LIQUIDBEES is same as for other funds, lets say I have Rs. 1L worth liquidbees in my demat, I would get 1L margin, but need to have 10k (10%) as cash in my account.
    2. What are the brokerages for LIQUIDBEES? (Its the same as for any stock?) Also I read somewhere to promote this product the brokerage on this product is waived off completely with lot of brokers, is Zerodha one of them?
    3. What are the demat charges? (Again seems like NSDL/CDSL charges are waived off here also, from the GS/benchmark website for this product)
    4. Any other charges that Zerodha/ILFS would charge?

    It would be great if you could give this information, as it requires to calculate the overall charges (If it turns out to be expensive and have to breakeven on the cost of this product itself) and see in % terms if it works out to get into this or not as collateral.

    Cheers!

  289. DM0969 says:

    Hi Nithin, I Want to prepare with proper funding for the Election strategy. I have quick 5 question on this example.

    I buy one Union Bank future @110 + i buy one put Rs 5 of strike price Rs110… lets say there is a hung parliament and market crashes and the stock nose dives to Rs90.

    Q1) Will My profitable Put position compensate my MTM loss in my futures position? i.e i dont need to provide additional margin for my MTM loses

    Q2) The only thing that will shoot up will be the margin required to hold my futures?
    Q3) How much time is given to top up my account with the margin required before any penalty?
    Q4) How much time is given before the position gets squared off due to margin call?
    Q5) Generally in such senarios by how much percentage increase in margin takes place?

    Thanks,
    Mahesh

    • Mahesh

      1. Technically the futures position MTM loss cannot be adjusted by profits from the Put position. But as a RMS team we understand that it is a risk free position and will give you time to bring in MTM losses on your future position.
      2. Yes
      3. We will have to report margins to the exchanges at the end of everyday, if there is any short margin in the account at the close of markets (3.30pm), it is reported to the exchange, and there might be a penalty. But note that this penalty is only if the margin drops below the SPAN margin which will usually be around 20% below the total margin. So if 30k is the total margin for Union Bank, only if the margin drops below 24k will the exchange penalty happen.
      4. We would typically not square off such a position, and will give you time as long as the value of Put has increased and making up for MTM losses. But note that there might be a exchange penalty for such a position.
      5. Didn’t get what you were trying to ask.

      • DM0969 says:

        Thanks Nithin for the quick replies 🙂

        My last question was. Lets say i buy a Union bank future on 15th May by paying the total margin of Rs30000/- and after election results the market tanks on 16th May and the stock tanks by 10%, so in this extreme volatility, by how much the total futures margin which is ideally Rs30000/- will increase by?

        • If I have to go by past data, a fall of stock price of around 10% in a day usually will mean the margin requirement going up 20% atleast, so 30k might become 36k. But again, this is not exact figure, it can be higher or lower.

          Cheers,

  290. Vinodh says:

    Hello Nithin,

    I try to write March 6500CE at rs 50 (450 Quantity).. I hold margin only 2 lac, it takes nearly 2 for writing, what will happen when my stock price increase to 75, whether my position will be square off or my span margin will decreased to maintain MTM…

    • Hanan says:

      Vinodh, when you write options, a considerable amount of margin is blocked which takes care of such a risk. In the event that the position goes against you, additional margin gets blocked at the end of the day. If it goes in favor of you, lesser margin is blocked at the end of the day. If you don’t have sufficient funds to cover for the additional margin to be blocked the position will be squared off by our RMS desk on the following day if the position is still going against you and you haven’t brought in additional funds.

      • Vinodh S says:

        Thank you for the valuable advice.

        If the situation is going against me, my positions will be squared off. Okay. But if situation returns favourable for me, say after a few trading sessions, will I get my positions back??

        • No Vinod, Once your position is squared off, that means you will not hold the position anymore. So it is always best to trade with enough margin cushion for any MTM losses,

          Cheers,

  291. Abhishek says:

    Hello Nithin,

    How can I determine the change in margin required using the SPAN calculator?

    Abhishek

    • Abhishek,

      The margin required on your account will keep going higher, you just have to keep a tab on your ledger and margin blocked, you don’t have to keep tracking on the SPAN. Also, our RMS team typically understands such positions, so as long as the risk is hedged like in your position, you can take it easy.

      Cheers,

  292. Abhishek says:

    Hello Nitin,

    Let’s say I write a May 6000PE and buy an April 6100PE, with the Nifty spot at 6500. Let’s say the Nifty falls by 400 points in a couple of weeks. How will the MTM work for my position? I would make a gain on my long position, but would be making a loss on my short position. Do you net the two positions together? Or would I have to add the entire amount of the loss into my account to continue to hold my short position?

    Abhishek

    • Abhishek,

      If you use our SPAN calculator, you will see that the margin required to get into a position like this is around 20k. When Nifty drops by 400 points, the margin will most likely go upto around 30k, so you would be required to bring in the extra 10k as margin to hold this combined position. Basically you will have to bring in whatever is the increase in margin for holding both positions together.

      Cheers,

  293. coolblr says:

    Thanks Nithin, will ping Siva and get more specific details for my case.

  294. SAI says:

    Hi
    i want to know that, is their any limits for placing order in options i.e option lot size,order value
    is it possible to buy 500000 woth premium options,what is the maximum order size .
    i am waiting for ur reply.

    • Sai,

      NSE has put a limit of 200 lots of Nifty in order, so you can buy 10,000 Nifty options, there is no condition on value of this premium as such. If you want to take bigger positions, you can place multiple orders of 200 lots of Nifty.

      Cheers,

  295. ;ldjsf says:

    Hey can i use zerodha trader under minilaptop ie: netbook kind of

    • Hanan says:

      Yes, you can use ZT on a mini laptop as long as it’s got Windows on it. Alternatively, you can trade using Z5 on any device as long as it has a modern browser.

  296. RAJ NAYAK says:

    Hi Nithin,

    This blog is very informative and useful.
    I have one question here. Let s say today at the close 6500 CE is 85. If I short it at 100, and nifty expires at 6340. at that time i am sure this call price would be around 0.05. At that time do i need to buy it back to earn profit or it is okay even if I don’t buy it.

    the same for the loss side also. if it expires at 6900 .. at that also do i need to cover my position or just let it go. If I don’t cover it, how much would i have pay for the STT?

    Thanks,
    Raj…

    • Hi Raj,

      Once you have short an option, you don’t really need to cover it on the expiry day, it will get cash settled.

      1. Inc case option expires out of money(your first example), the option expires at 0, so you get to keep the entire premium, and since it expires worthless there is no brokerage or other costs to this trade.

      2. If it expires in the money, 6500 call will expire at Rs 400 (Rs 20,000 of premium), this much money would be debited from you and given to the buyer of the option.

      You don’t have to worry about STT when you short options because you would have already paid STT, and it doesn’t matter if you let the option expire worthless or in the money. STT component plays a part when your buy options expire in the money, check this blog.

  297. coolblr says:

    Any update on the process/documentation part of how to get pledging done from getting in to getting out (when the collateral is MF’s) and vice versa.

    Cheers!

    • Cool,

      Firstly to pledge your MF it has to be in a demat form, so if it is not demated you can do it through us(ILFS). Once it is in demat, you can pledge and use the margins for trading F&O. If you want to sell this now, you will have to first put an unpledge request with us, and once done, you need to send a redemption request to your mutual fund house (similar to how you are presently doing). That’s it.

      Hope this clarifies,

      Cheers,

  298. nirav says:

    Nithin, any plan in increasing exposure in option writing for intraday only? more exposure should be given for short straddle position only for intraday, because while approaching to expiry its very hard to pay margin and get profit as premiums are very less, margin requirement should be of price of premium only. i am talking about more exposure for only intraday short straddle only…

    • Nirav,

      One of the issue is especially with spreads is that the risk management tools don’t really do a good job monitoring combined positions. What makes the matter worse is that other than Nifty and Bank nifty, most other options are illiquid. It will be very tricky to increase the intraday leverage from 40% overnight margin that we ask for presently.

      Cheers,

      • nirav says:

        something should be think over, because genuine traders are hesitating in keeping more money (which cant be considered in investment for calculating ROI) in z-account. so they are not coming to you and approaching local broker because they would not require margin for intraday writing of an option. Something relaxation should be think over.

  299. sachin deshmukh says:

    any time line for new trading platform sir

  300. Souvik Banerjee says:

    Greetings of the day. I’m an Institutional Investor and I currently trade with Kotak Securities. Now, I was thinking to transfer all my funds worth Rs.60-70 lakh to my Zerodha trading account.
    So, how safe is my money with Zerodha? Looking forward to hearing from you soon.

    • Souvik,

      As I am writing this to you, am waiting to attend the award ceremony as a winner of the Entrepreneur of the year 2013 by CII, the reason I am telling you is because the due diligence for this award was done by Grand Thornton.
      The question usually asked is because we charge so less, but the question to be asked is why everyone else is charging so much more in an environment where everything is online. As a business we have zero debts, have taken no leverage, don’t get into any funding activity, and have been more profitable than most retail brokerages the last financial year.

      Looking to have you on board soon Souvik, 🙂

      Cheers,

      • SWAPNIL says:

        Dear Nitin,

        If I want to structure a long condor with RIL. Is it necessary to keep the difference between the strike prices same? like strike price of say 780-820-860-900 all call options. Is it possible to structure a long condor with these strike prices 740-800-900-960 all call options?

        Regards,
        Swapnil

      • Souvik Banerjee says:

        Ok! So the last question that is in my mind is that what if my broker defaults anyday? Thanks and regards. Awaiting your reply.

        • Souvik,

          There is an investor protection fund setup by the exchange (NSE), it is over 1000 crores and the best part is that it has never been used since our exchanges and regulators have done an amazing job to ensure that brokers can’t default.

          Cheers,

  301. coolblr says:

    Thanks Nithin. Will contact Siva and put [email protected] in CC as you said. Now, I’ll have to figure out how to transfer the MF’s to/fro back/forth demat/third party. Would Siva know?

  302. coolblr says:

    @Nithin, went through some of your posts here on giving stocks, MF or ETF’s as collateral for the margin for derivative positions, I have some questions:

    1. These collateral MF’s (I think I saw the list also somewhere on your website) have to be in the demat account that I have with Zerodha?
    2. When I have lets say MF as collateral, I will not be able to sell the MF’s only when I have positions in derivatives against it or irrespective of I have positions or not I will have to let you know guys then only I can sell them?
    3. The reason I got interested is I have some money lying in debt/liquid funds, which I can use it as collateral against my options positions (usually I sell options, but not since 1-2 months as the IV’s are in the gutter and premiums are bad, so rather buying it lately). I have these MF’s with a third party reseller, I think I can either transfer the MF’s or sell there and buy here again. If I buy MF’s here again, I have to buy it on the terminal or how does it work? Also, lets say I do not have any positions and I want to exit out of these MF’s how do I do it?

    Cheers!

    • coolblr says:

      Nithin, can you please reply when you get some time and also any links/pointers would be helpful as well.

      Cheers!

    • Sorry cool, had missed this.

      1. Yes, you will have to have all that you intend to pledge in the demat account with us.

      2. When you pledge a MF, ETF, or Stock, it is pledged with NSE, and as long as it is pledged you will not be able to sell it. To sell it, you will have to first put a request to unpledge and only then will you be allowed to sell.

      3. Presently you can buy/sell any ETF, debt/liquid fund through the terminal itself. When you want to exit, you will have to first unpledge and sell it on the terminal.

      Cheers,