Option buying: The riskiest trade out there

Over my past 20 years in the markets, I have interacted with many retail traders, in various capacities. And one thing I’ve seen that leads retail investors to consistently lose money is option buying. The main reason for this is traders usually transition from trading stocks or futures to trading options. And so, they end up trading options like the way they traded stocks. This is a sure-shot way to fail.

Over the last year, we have seen a trend of retail traders shifting from trading stocks and futures to buying options. This may be fuelled by the restrictions on intraday leverages on stocks and futures under the new peak margin rules. This trend is also strengthened by an influx of younger, more aggressive traders. This has been alarming for us as Zerodha.

We have constantly tried to educate customers on all aspects of options trading through Varsity. However, we need to do more. In this post, I will talk about why most option buyers lose money, the best practices to reduce risk and improve odds of profiting when buying options, and what we are doing to help you trade better.

Options, leverage, and risk management

What attracts people to options is leverage – the ability to get exposure to large trading positions with small amounts of money. This induces greed and the notion that you can make money quickly.

For example, assume Nifty the index is trading at 16000, and 16000 calls are at Rs 100 (lot size = 75). With Rs 7500 (75 x 100) of premium, you can get exposure to a contract that is valued at Rs 12L (16000 x 75) or leverage of 160 times. If you compare this with trading intraday stocks or futures which at best gives up to 8 times leverage (Nifty futures margin of around 12%), you’d understand the attraction towards option buying.

Leverage, as they say, is like a weapon of mass destruction unless used carefully. The most fundamental risk management rule when actively trading with leverage is to ensure you don’t take a position so large that it can cause a loss of more than 5% of your trading capital. When buying options, the entire value of the option can go to zero quickly. This means you shouldn’t be buying options for more than a small percentage (<5%) of your capital at any given time.

This rule gets broken often by amateur traders in an attempt to get rich quickly. This is tempting fate. If you somehow did get lucky by being aggressive with leverage, you are most likely to lose it in the long run if you follow the same strategy. Most traders don’t change their trading habits after a large winning trade. Making money will only reinforce the idea that what you are doing is probably the right way to trade.

Let me recount an especially spectacular incident of up and down in quick time, of which there have been many.

Back in 2009 when I was a sub-broker with Reliance Money, one of our customers went all in before the Indian general election results in May 2009 by buying deep out of the money call options with all the money he had. He got super lucky as Nifty went up over 40% in 2 days and this Rs 2L turned into more than Rs 2 crores. But the story didn’t end there, he continued trading super aggressively, and ended up losing not just the entire 2 crores but more than his initial capital over the next 6 months.

To be cognizant of the risk, an important part of the checklist for anyone buying options should be to look at the exposure in terms of contract value and not the premium. So, if you had Rs 1L in your trading account and say you bought 4 lots of the Nifty 16000 calls at Rs 100, don’t think of it as a Rs 30,000 premium, but an exposure of Rs 48 lakhs (the total contract value = Rs 12lks x 4). Do check out this module on Varsity which talks about position sizing.

Option premium loses money with time

The most common way in which traders lose money is by buying Calls when they think the market is bullish and buying Puts when they think the market is bearish. More often than not, they buy OTM Options. Here is the problem with that:

Suppose NIFTY is at 15800, and you buy Nifty Weekly Call option of Strike 16000, the option will have a premium of around 100 Rs. This means that your option starts making money at 16000. But you start breaking even (if you intend to hold till expiry) only at 16000 + 100 = 16100, as you have to recover the 100 Rs premium you paid for the option. That means your breakeven is 300 points away

This means that:

  • You have to be right on direction
  • You have to be right in a big way – 300 points just to breakeven
  • You have to be right within a short period

All these 3 put together are difficult to happen. Even if the market doesn’t move against you and stays flat, as the contract approaches expiry, the premium drops along with the time value. Option premium = Intrinsic value + time value. The one certain thing is the constantly reducing time value. This is the main reason why option buyers lose money – they are constantly fighting time.

This is unlike trading stocks or futures, where you can potentially hold the stock forever or continue rolling the futures contracts, albeit at a small rollover cost. The above effect of time value gets exaggerated because most actively traded options contracts are ATM (At The Money) or OTM (Out of The Money) which have no intrinsic value. So if Nifty is at 16000, 16000 Calls will likely be the most actively traded contract. But this contract has just time value and no intrinsic value, and hence, a high probability of losing money, even without the underlying Nifty index moving against the trade.

Also remember that if you buy weekly expiries as compared to monthly expiries, time value reduces much faster. If you are taking a directional view buying options, always trade monthly expiry, you will have much more time value and hence higher odds of profiting as compared to trading weekly.

Averaging down buy option positions is a bad idea

I had shared this sometime back on social media, that averaging down or buying more of a stock if the price goes against you is probably the biggest destroyer of investor wealth. While averaging down might work sometimes, disaster may just be one stock away. For example, in the case of Yes Bank, as the stock kept dropping from Rs 400 to Rs 10 a couple of years back, many retail investors who had bought Yes Bank at higher prices kept buying more trying to average down, even selling other stocks to buy more of Yes Bank. The wealth destruction was immense.

But averaging down can work sometimes when you buy stocks and the markets are in a long-term bull market because you have time in your favour or the ability to hold on to the position forever. It is ludicrous to think of doing the same with long/buy options when time is constantly ticking against you.

The right way to trade the markets is to never get overexposed to any trade that can cause more than 5% of your trading capital. If your potential losses are limited, the chances of you acting rationally when a trade goes against you is much higher. Averaging down positions is done by traders who don’t want to accept their losses, and this most likely happens when the losses are too large to accept.

Stop your losses fast

Like I just mentioned, losses are easiest to accept when they are small. As they get bigger, it only gets tougher to exit. If trading options with larger than say even 1% of your capital, having a stop loss in place is important. Many retail traders get stuck in this vicious cycle of hope when there is a loss that is too big to accept. Short term or intraday trades turn into long term positions just because of the loss. When you buy options, this decision to hold losing intraday positions overnight only exaggerates the loss. Like I explained before, when you buy options, there is a constant depreciation of time value, and along with it, the premium. Every extra day and weekend that you hold buy option positions significantly erodes the premium.

Impact cost of trading options

Impact cost is the money you lose when trading due to the bid-ask spread. If Nifty 16000 Calls is at Rs 100 Bid and Rs 100.5 Ask, this Rs 0.5 is the impact cost you would pay in the act of buying and selling this contract. While you can place limit orders to enter options to avoid this impact cost, limit orders don’t guarantee execution, especially when trading options premiums which are exponentially more volatile as compared to underlying stocks or futures. An option contract trading at Rs 100 can go to Rs 200 or Rs 0 and on the same day.

Impact cost is an invisible cost that eats into a trader’s performance over time. Say you were trading 1 lot of Nifty futures by putting up a margin of 1.5L and say the impact cost or bid-ask spread was Rs 0.5, that would mean 75 (Nifty lot size) x 0.5 = ~Rs 40. Rs 40 on a margin of Rs 1.5 lakhs is an insignificant 0.02% of the capital on the trade. Now assume another trader has Rs 7500 in the account and uses it to buy 1 lot Nifty calls at Rs 100 by paying Rs 7500. The impact cost on this trade will now be 0.5 points of Nifty calls or the same Rs 40. But this Rs 40 on the trading capital of Rs 7500 is a whopping 0.5%.

What this means is that if you are using your entire trading capital to buy options, and say you are trading just once a day, you could potentially lose 10% (0.5% x 20) or more of your trading capital just in impact cost every month. Let that sink in, 10% every month just in impact cost over 20 trades to remain profitable. Of course, you can have a few good months where you can earn more than 10%, but in the long run, the odds of coming on top with such a high impact cost reduces significantly.

The only way to reduce this impact cost on your account performance is again by not using your entire trading capital on every trade when buying options. Otherwise, impact costs can stack up very fast against you. So, other than risk management when trading with high leverage, the effect of impact cost on your account also is the reason why you shouldn’t buy options for more than 5% of your trading capital at any given time.

Option writing or futures aren’t safe either

By the way, I am not implying that you should write options or trade futures. All leveraged products carry a high risk. But since the inherent leverage is lesser when trading futures or writing options and also because you are not having to constantly fight time value, the risk is lesser. Lesser the risk, the higher the odds of generating profits.

At Zerodha, normally on the end of day positions,

~80% of all open buy option positions are in a loss.
~25% of all open short option positions are in a loss.

Highlighting how significantly more losses are incurred by option buyers as compared to those writing options due to higher leverage or risk. The reason for this is also because most people shorting options, either naked or part of a strategy, typically normally think of it as a longer-term trade. In contrast, most people who end up holding buy option positions are typically those who entered the trade for intraday but decided to keep it overnight to avoid booking a loss.

What is Zerodha doing about this?

While we will continue to focus on educating traders through Varsity, we believe that we can do more as a broker with our tools like Nudge. We are attempting to see if we can meaningfully alert traders to be more cautious when buying options. Here is a list of things we are doing:

Nudge to place a Stoploss (SL) when buying options

We have now started nudging users to place a GTT (Good Till Triggered) stoploss right when buying options (Index options to start with). If you are buying Nifty calls at Rs 100, the order window will prompt you to enter the GTT SL price while placing the order.

Set a GTT stoploss when buying an index option

Of course, you can choose to uncheck the GTT SL option to proceed to buy options without an SL order, but I hope most users will enter an SL price. If you aren’t sure about how much Stoploss % to keep, a good number is between 5 to 10%. If you can get out of a position before the loss gets too big to accept, you can avoid the temptation of averaging down, which is a sure-shot route to capital destruction as I had explained earlier.

This SL is longstanding and is valid until cancelled. We have started this on Kite web and will be available on Kite mobile soon. Read this to learn more about placing stoploss using GTT. The one thing you need to make sure of with GTT is to cancel any open SL or Exit GTT orders when you exit your positions directly to avoid extra positions in your account.

Restrictions on buying out of the money (OTM) options

Buying OTM options with only time value as I explained earlier carries huge amounts of risk. We have placed restrictions on the buying of OTM options. We typically allow buying index options which are OTM by more than 1% only if it is being used to hedge or as part of an option strategy that carries a much lower risk, otherwise, we don’t allow buying naked OTM options.

This was not intentional, to begin with. We were forced to restrict buying OTM index options since we as a brokerage firm were hitting the regulatory limit of 15% open interest (OI) of total marketwide OI in any F&O contract.

While this has led to angst amongst certain groups of traders and revenue loss for us as a business, we know that it has helped our customers overall significantly with the restriction on buying OTM options.

Restricting MIS (intraday) to NRML position conversion

Like I mentioned earlier, there are many times intraday trades are held overnight if the trade goes bad, and this makes it only worse, especially with long (buy) options positions. We have now restricted position conversion from MIS (intraday) to NRML (overnight) if you had bought options using product type MIS with the idea of it being an intraday trade. We have started this with index options and plan to soon extend to stock options as well. We are hoping that this will act like an integrated risk management strategy built into the trading platform. With this in place, we now allow buying a wider range of option strikes in Index options using the MIS product type. If you are taking an option trade for intraday, make sure to use MIS product type for this forced risk management to kick in.

Showing exposure in terms of the contract value

Currently, all trading platforms typically show the margins available in the trading account and margins used, but not the overall exposure. For example, if you buy 1 lot of Nifty futures using Rs 1.5L, the exposure is Rs 12L while your margin is Rs 1.5L. Similarly, if you buy 1 lot of Nifty calls with Rs 7500 as premium, the exposure to Nifty is Rs 12L and not just Rs 7500.

We will start showing you the overall exposure value on the positions page on both Kite and Console to give you a better sense of the Risk that you are potentially taking with your account.

Option strategies vs buying naked options

Trading options strategies (combination of calls and puts, buying and shorting) as compared to just buying naked calls or puts can significantly lower the risk and hence increase the odds of winning. Our partnership with Sensibull was to figure ways in which we could nudge customers from buying naked options to trading low-risk option strategies. We have introduced the analyse options risk button on the Kite positions page. We will soon launch option strategy suggestions through Kite baskets, both powered by Sensibull.

_____________________________

That was a long post. If you can think of anything apart from what is mentioned above to help you do better when trading options, do let us know. Of course apart from asking us to give sure-shot winning trade ideas, which is impossible. 🙂

Nithin Kamath

CEO @ Zerodha and partnering startups through Rainmatter to help grow and improve the capital market ecosystem in India. Love playing poker, basketball, and guitar. @Nithin0dha on Twitter. | Personal website: https://nithinkamath.me

207 comments

  1. Pradeep Kotecha says:

    Have you think that zerodha has a difficult to launch Stock SIP Amount Base Feature last 1 year we are waiting for the same but the reply get only in proces in process how could you define the same.

    • https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/kite-sip-order. There is an issue with having an amount based SIP for stocks, unlike Mutual fund where you can buy a fraction of a unit you can’t do the same with stocks. So amount based SIP for stocks wouldn’t make sense.

      • Saravanan says:

        Need a feature in zerodha’s SIP wrt to day of week as well.. Currently we can enter a sip in date only.

        Would be useful if we could introduce something like 1st Thursday, 2nd Thursday etc…

        And also interms of nifty change percentage…. Like when nifty falls below 5%. Enter an SIP of 5000 rs..

        Thanks in advance

      • ALOK BAKHSHI says:

        Excellent read.
        My suggestion. (Already conveyed earlier but hope this time it will be considered for implementation) .
        Kindly provide stop loss facility based on MTM basis.
        For example..after initiating trade, if I want to restrict my loss to a certain amount of my MTM , I should be able to do so. Suppose I want to restrict my stop loss to maximum Rs.2000, as soon as my MTM loss becomes (-) 2000, my all/opted positions should square off automatically. Similarly, if I am running on Rs. 5000 profit and I want my loss to restrict to max. Rs. 2000 thereby ensuring my profit minimum Rs.3000, I should be able to do so.
        Can you do this please. ?

      • pradeep Kotecha says:

        Dear Nitin Sir,

        I am not able to post my screenshot over here the same features in also angel broking but it cant user friendly as Zerodha so that’s why I am insist you to Please come up with Amount based SIP

        I just send the screenshot in your Twitter from my handle @pradeepkotecha4.

        If you come out with this features then even you cant imagine that how much you help to Small Investor like us.

        If angel broking did the same thing they why you can’t that is the only Question mark ?

      • Hakimuddin Bohra says:

        Instead , MAke SIP of stocks in qty at existing price of any given point of time .

    • Deepa says:

      Hi ,
      I am new to options trading and initially for consistent 5days I earned 20k for 1lac investment and the I lost 50k of my capital. I could relate each and every line that you mentioned here. I guess greed is what burned up my hard cash 😊 thanks for sharing this its like a mirror shown , I could learn a lot , please keep posting…

  2. Tijo says:

    Excellent read.

  3. Chandra N says:

    Excellent post, two months late, i lost a bit of my capital buying options😅… Can we have. Module on how to keep stop loss for options

    Because of the theta decay, i am super confused on when to exit.

    In may expiry, I exited infy ce options at 2nd last day, but on the last day it shot up and i would have recovered my losses

    Thanks for this post, it’s very important advice for new option buyers

  4. Srinath gowda says:

    Even for hedging also after 3pm it’s not allowing to buy far otms.

    • If you have short options or futures, we do allow buying OTM options to hedge.

      • Umesh says:

        But it will block ur margin still ur hedging your position. As ur shorting first then buying later.

      • Anoop says:

        Hi Nithin,
        I am an Options seller. And I only do Iron Condor strategy in Nifty only, with atleast 1000-1500 points away from the spot. I like to do this even more futher but when I look at Sensibull’s Options chain, I am unable to see or select strikes which are 2000 points away from the spot, however these strike can be viewed in Nifty’s Options chain. Hence could you please urgently allow traders to select strikes as per their will, if the traders have no issue with putting their money on the line, can you please advise as to why unnecessary restrictions are being placed which prevents the wise and knowledgeable traders from placing good trades (Hedge positions)
        Please never assume that all retail traders are amateur traders and lack the knowledge and skills in placing good trades.

        Kindly look into this matter and I am expecting a positive response from you and your team ASAP.

  5. Veeresh says:

    If there is dynamic option chains in pictorial forms for any option, that might stand out for option traders in choosing right strikes.

    Getting option chains from going to other apps or NSE is a cumbersome process

    • Arvin says:

      Nithin,

      Have you considered the fact, if a profitable MIS buy option has to be converted to NRML, basis next day market view, we end up paying brokerage + taxes just to exit and enter the trade. Can this be worked around?

      Also have you thought if buy OTM in hedged positions can be excluded?

      • Almost all the time folks who convert MIS to NRML are those who are losing money and don’t want to book the loss. Like I explained earlier, we are trying to figure ways to avoid that from happening. If this additional cost can nudge people from doing that mistake, we are okay with it.

        We allow OTM options if you are using it to hedge your exiting short options or futures positions.

        • Adi says:

          I sold a strangle and had to exit it because the platform blocked OTM. So it is not true just because you have sorted you can buy far OTM. Left your platform completely because of that.

          • GANESH JI AGRAWAL says:

            Adi, I faced similar issue today. sorted jul expiry option but when try to buy OTM buy to hedge it, nudge message appeared. Not want to quit Zerodha but if I am unable to do simple strategy like iron Condor, hv to look other platform

    • hmm.. we do have an option chain that is powered by Sensibull right? https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/others/articles/kite-option-chain

      The issue mostly isn’t about choosing the right strike, it is about deciding on the right quantity. Most people ideally should be trading <5% of trading capital when buying options.

  6. Sridhar Sarathy says:

    Excellent views it’s exactly matched to me like retail blind investor , I lost big moneys still ,in every time confusing and take naked call without any valid reason , if took no have exit plan ,holding ,averaging means finally losing all capital . Now I am using kill switch and only focus on equity for learning. One day when learn FNO will see the option trading. That’s all folks bye

    • kirankumar says:

      on your comment i like to share you on average how it works , really averaging is a good idea but high investment but sure shot in option buying wre u must make your time decay “0” that means u must avg to the price where the premium is running and u must equally buy the same quantity of cost price u bought initially .

      for example
      nifty 15700 @ Rs 60 (Friday) u bought 1 quantity = 60*75 = Rs4500
      and now it is running for 30rs(Monday)
      keep in your mind your premium is set to be zero only on Thursday so it will fluctuate ( 0 to Rs.60 only )
      if it go up its not a problem to you ,

      npw come to preimum fall Rs 30 and the preimum is and levels are perfectly match u know it preimum will go atleast Rs.1 from here , then make an avg now to spot price premium and equally the initially price =quantity (4500) so, that your Avg come to present premium and u hold 4500 qunaity if the market goes on your expected direction u will get mulitiple of your 4500 simple but make sure that quantity and premium shold match and time decay is 0 and u must exit

  7. Raveendran says:

    Buying options intraday can be good idea if done with SL

    • Yep, but as long as that Stoploss isn’t in your head but actually in the system. And also if you aren’t trading with your entire trading capital every intraday options trade.

      • Ranjan says:

        I think you should implement a parental mode where all these risk management strategies like system stop loss is compulsory and enable normal trading without annoying notifications like pre checked sl during high speed play by professional traders which you can determine by an exam or 60 days zerodha challenge or an quiz or exam

  8. Prashant Malhotra says:

    Great writeup as always & Thanks for periodically educating 0dha traders community at large.

  9. Rajkumar says:

    We normally buy options in delivery mode in Zerodha because only with the delivery mode, the Stop-loss and Target can be defined.
    The article is good.

    When will Zerodha give the provision of Stoploss and Target for Intraday buying? Thus supporting intraday traders ?

  10. Mayank Lodha says:

    Brokers make most of their money from F&O trades taken by their clients. But here, at Zerodha, the main motive is to safeguard the interests of the traders and save them from losing tons of money by trading F&O (without proper knowledge).
    It was a beautiful read indeed!

    • Taur khatri says:

      Surely this read is in interest of traders, but there is a big motive lying behind this act. Since last 2 years, huge amount of traders and investors have come to this platform, and now with these new peak margin rules option buyers are also increasing, so if the new traders make huge losses by option buying, they may get feared of loosing capital and end up leaving trading activity at all. This will, in log term, cause zeradha loose customers in a large number.

    • Adi says:

      That is unlikely to be the only motive. It is much harder to lose money in options closer to ATM than OTM. So say you have a 10K account and lose all your money in one trade vs 10 trades when they do not allow OTM, they make 10 times more brokerage. I do not think its all altrusitic. Nothing wrong with that. They are also running a business. Why not make money with altruism. No?

  11. Manish says:

    Excellent post. I really appreciate the spirit in which it is written.

    As a relatively new user of the platform (but otherwise not a newbie to the markets), I felt that having MIS and NRML in the same window (albeit different tabs) is confusing. At least there should be some colour coding. This problem will become bigger if you stop allowing conversion from MIS to NRML.

    Alternatively, you might want to give a nudge – for example, when someone buys an MIS for futures in the far month it is likely a mistake and the individual intended to buy NRML (I recognize that for now you are only talking about disabling conversion for options but felt that I should add a comment just in case this idea spills over to futures as well).

    Thanks

  12. Rahul says:

    It’s mentioned that buying OTM options is allowed if it used as a hedge, but in some strategies like Bear call spread one needs to Buy further OTM first and Sell OTM later in order to get the reduced margin benefit, but system doesn’t allow that, even if placed through Basket order. So higher margin is required.

    • Tanmoy Chatterjee says:

      Of course Zerodha will never reply to this valid question intentionally. Better trade with other full cycle brokers. Only thing good about zerodha is Varsity.

    • yeah, this one is tricky for us to cover. There is no way for us to figure when the customer is first buying options if he will end up with a strategy or not. Even with basket orders, the orders are sent one after the other and there is no guaranteed that the short order will go through.

      • Dhinesh says:

        Hi,
        very informative post.

        i have doubt that, if i use bear call spread .
        nifty at 15600
        sell ce 16100
        buy ce 16300,
        a) is it possible to buy ce 16300?
        b) if possible to buy , then do i get margin benefit.

        i am new to options tradin, that y this type of doubt…/

      • Godwin says:

        It will be possible if you allow kite to select multiple positions at the same time and convert it into normal positions. If the client selects two MIS positions at the same time like 1 OTM long and 1 ATM/OTM short to convert into Normal positions Zerodha could allow the conversion as both will be converted into NRML at the same time and the position is a hedged position. As the position already exists with the client and only the position type needs to be changed in the client’s position from MIS to NRML the effect of market changes will be negligible as no new order needs to be placed. And a time limit could be set for such scenario like MIS to NRML conversion to be done at least before 3 PM and hence the burden on the RMS will be reduced to some extent before 3 PM.

        • Ah, as I mentioned in the post, we have now stopped allowing conversion from MIS to NRML. This conversion was mainly used earlier when people were converting to MIS to have lesser margin blocked and then converting back again to carry forward positions. With peak margin regulation, the margin required for NRML and MIS is the same now. So the conversion feature isn’t really needed anymore.

          • Godwin says:

            I meant in order to create a carry forward hedged short position in basket order, the short position needs to be placed first which requires more margin. Instead if the same basket is created with intraday Long position first(as far OTM buying in allowed in MIS) and then the MIS short position next, the margin requirements would be lesser and when it is allowed to be converted into NRML position before EOD the peak margin requirements would be around the same right. So If I am right Kite shall allow only hedged MIS position conversion to NRML position(if possible) and not naked Long positions. And when the position needs to be squared off the client could exit the short position first and the long position next without breaching the margin requirements.

  13. Jitesh Khandelwal says:

    Similarly, if you buy 1 lot of Nifty calls with Rs 7500 as premium, the exposure to Nifty is Rs 12L and not just Rs 7500.

    Why is the exposure 12L in the above case? Isn’t exposure capped by the total amount the investor can loose which is only 7500 in this case.

    • Yeah, your maximum loss is Rs 7500, but how quickly you can lose this money is based on the exposure you have taken. If you think of it as 12Lks, you will know that you can lose this Rs7500 very quickly and hence hopefully be more conservative when deciding on how much options to buy.

  14. sameer says:

    Sir introduce fixed brokerage plan or no intraday brokerage like others are offering.

  15. Ashutosh Malpani says:

    If I have TOTP can I buy options that are deep OTM without a hedge, assuming Zerodha has not hit the 15% limit?

    • No, we don’t allow as I explained in the post. (With our without TOTP). TOTP feature is mainly when someone is trading an illiquid contract where potential frauds can happen.

  16. Gana SK says:

    Great article and I am sure this will bring in more discipline…and Zerodha is doing the best it can…

    Here are few suggestions…

    Feature to add instrument from marketwatch to baskets
    Ability to see individual P&L of various strategy combos
    Nudge on cancelling pending orders if a similar order is executed directly.
    Thanks

    • Ram says:

      Yes. I second the proposal. The filters available in the kite mobile version are not there in web version for Positions. Pl provide them too

  17. Arun Kumar says:

    Helful information.
    Why can’t zerodha provide an option to put GTT on entire intraday portfolio, so that one can exit fromall trades if it hits target/SL . It just provide option to put GTT on individual trade.

  18. Amit says:

    Could you please increase the otm range for hedging. Is it possible to make an arrangement in basket where an iron condor can be created to trade 1000-800 points range for Nifty.

  19. Amaanullah Bhatti says:

    It would be great if you guys provide a SL feature with a price SL and not just a % SL because alot of newbie option traders don’t think in % terms and so it would be easy for them if you add this feature. For example : option premium is 100, they’ve bought 10 lots of Nifty options and they have a mental stop loss of Rs 7500, it would be easier for them to make 98 as stop loss, it’s a 10% stop loss but I know alot of people who are very disciplined in their trading but aren’t into percentages, so I think it would be great it you guys add this feature as well

  20. Muthukrishnan Bala says:

    Pls implement “exposure” while buying/selling options and futures. Most people were not aware of this, particullary in futures.

  21. Sathyamoorthi says:

    You should provide “Kill Switch” right away in the kite dashboard or in positions page. So without second thought an inexperience trade will click and stop trading for the day. I’m saying from my experience. It will save many.

  22. V T Vishwanath says:

    When I execute strategies lets say iron condor and at the end of the day I want to carry forward my position by converting it to NRML. In this situation it really hurts as I have to exit bought option in MIS and re-enter as NRML. The position convertion didn’t work for OTM option buying.

    Here, in this situation I am not long on OTM alone. Its a part of strategy.
    In my recent 1 week, I hade to exit MIS and re-enter NRML to carry forward my strategy. Making me to place almost 1.5 times more orders. And increase the slippage while re-entering as NRML

    Only thing is happening is increasing number of orders which is generating Money 💸💰 to Zerodha and Government.

    My only advice is stop controlling traders like SEBI. I agree traders should know about their risk. But please stop controlling them.

  23. Nilesh says:

    Far OTM buying doesn’t work even in case of hedge. Is the any trick to do that.

  24. Nilesh says:

    Great article! Thank you!!

    For option sellers how to restrict loses in case of black swan events?

  25. VIRAG KALSARA says:

    i miss bracket order. it must have. GTT SL order must be market. maximum loss using GTT order as it skip SL frequently and end up with loss which may be double or triple of your SL. For target it is triggered accurately!!! very good idea of looting. kindly make it as per the name ZE Rodah. no obstruction

  26. SibuDsilva says:

    Casino owner advised to gamblers.. 😄

    • Ganesh Malode says:

      Exactly…Most of the suggestions of SL % range of 5to10% is like giving open clues to option sellers to hit the stop loss.

  27. Krishcp says:

    Well explained and made understood for beginners like me to be careful.
    I never thought a CEO of a broking firm will be in our favour giving the right directions as after-all they don’t lose anything.
    Taking care of customers is a great step as ultimately without them nothing is possible.
    Thanks once again.

  28. Nishit says:

    1. It is equivalent to Microsoft “nudging” you to use Internet Explorer as the default Browser on Windows in late 1990s.
    2. There are 2 types of Derivatives traders.
    a. Who know the risk
    b. Who don’t know the risk
    Either way, they are not being forced into a trade. As a broker, Zerodha’s job is to provide me with tools and facilitate my trades. You can educate people, but not stop them from trading or converting their positions.
    3. Every trade needs an option buyer and option seller. If you make Buying a bit more difficult, it makes getting a counter party that much difficult to a seller.

    • Satya says:

      Completely agree with you.

      Nowadays zerodha and SEBI are behaving as if they own us. I made my biggest profits in an overnight banknifty position.

      I shifted my entire capital to fyers

      • Shakthan says:

        Pure crap.Caveat emptor or buyer beware these guys should understand.Nudging it seems ,Truckload of bull Kammath is giving.
        Who are you to dictate which strike one should be buying.Given the way indexes are stage managed with the gap ups and gap downs probability of coming out profitable is higher if overnight positions are carried.Zerodga doesn’t neet to play a self appointed guardian of sorts nudging users.We pay to get the service ,my strength lies in getting market directions right and I do it 80 percent times and not allowing me to pick OTMs is so much frustrating.Dont impose your Nudging on others.

    • Anirban Chatterjee says:

      Completely Agreed.

      There are many more things like PNL, Option Exercise, Physical Settlement, Margin Requirement, Taxation Zerodha can focus on for clients benefit.

      Also Zerodha can’t force client, it should be clients discrimination. This is interfearance on personal rights.

  29. The Mullicks says:

    Great Article, Atleast Someone is educating the retailer!

  30. Aditya says:

    Sir does it mean if I buy a option call in MIS and cannot convert it into normal ?

  31. Vivek Singh says:

    sir please leave these options to us. don’t forcefully take our decisions. It’s our right what to do and what not

  32. Siva says:

    We want to use OTM options as hedge or part of an option strategy, we want to convert MIS to NRML you should allow that. if we close MIS positions and again buy same NRML options it will increase our impact cost.

  33. PL Subramanian says:

    Kite basket is a good move. It can be a game changer. Even RS5/ on top of brokerage will benefit sensibull too. Good luck sir.

  34. Naman Jain says:

    Hi Nithin,
    A feature request/suggestion. Currently, there is no way to check the live stock breakup P/L positions. The closest thing is to check the console breakup which has the last day’s closing price. Any possibility of implementing that into Kite to make decision making much easier when it comes to holdings bought at different prices?

    • Ah that breakdown is complex to show on Kite. 1 stock holding can have hundreds of breakdown trades, showing the live P&L for all of that is not easy and not even necessary according to me.

  35. Ratnesh Rajput says:

    Excellent excellent excellent..
    That’s why I love zerodha..❤️

    ∆ They consistently improves the system to benefit their users.
    ∆ They share their experiences in the market with the new traders.
    ∆ They values their uses & guide them..

  36. pa3563 Amol Patil says:

    Sub,: About Not Trigerring Option SLM

    Nithin this is very useful feature. But most of the time it does work when put stop loss in case of options especially i.e. why most of the traders have been automated SLM to nifty spot strike price SLM.

    if possible plese do something about Option SLM to get trigger on right time….

    Grateful.
    Amol Patil

  37. Name says:

    Great post. 🙏

    But comparing margin exposure between future and options, I feel to be not a great method.

    Even with great exposure the risk is certainly limited to the premium, in case of buying options.

    Which is not the same with futures and writing options as it holds potential risk of unlimited loss upon a single wild swing.

    • I just answered above

      Yeah, your maximum loss is Rs 7500, but how quickly you can lose this money is based on the exposure you have taken. If you think of it as 12Lks, you will know that you can lose this Rs7500 very quickly and hence hopefully be more conservative when deciding on how much options to buy.

  38. Sunil Chippalaktti says:

    Excellent read,,,

    Request you to produce similar insight or stats about Zerodha’s clients overall position with respect to risk management

  39. Anirban Chatterjee says:

    Not allowing conversion from MIS to NRML is not ethically correct. By this one will exit existing MIS and will be taking NRML. This will benifit Zerodha with more brokerages, but not client.

    Also Zerodha needs to work on Fund section of KITE web. There are many times when positive balance is shown, end of the day client get margin penalty many a times.

  40. Kiran KS says:

    “Restricting MIS (intraday) to NRML position conversion”

    This was not necessary but ok

    Also, “We will soon launch option strategy suggestions through Kite baskets, both powered by Sensibull.”
    Placing option strategy order via sensibull is so smooth unlike the basket orders in Kite….Hope, you improve the basket order UI to make it usable like Sensibull UI…. On selecting the instrument, the entire chain is opened up and its just a quick selection unlike the Kite Basket UI where searching and configuring the strategy takes ages

  41. Nitesh Sharma says:

    Nithin Kudos and thanks from the Heart While the 99% Buisness Men are just in business of Selling Crap and making money ur ethics is at Different level Looks like every day u ask this Question to urself that how should I help retail investors just wow Work

  42. Ram says:

    Excellent article helping newbies as well as oldies but pl don’t restrict what is not necessary. Even nudges .ay delay my order placement. So give a thought and leave the choice to users

  43. Sourav says:

    Hi,

    Is there any chance to introduce automatic triggering of basket orders (to execute option spreads)?

    Sentinel has the feature to send alert when a condition is met but it does not trigger the basket.

  44. Karthikeyan M says:

    Hi Sir,

    Very good article and decisions. SL in Index options can help more. Also please try to enable SL in stock options also.

    Thanks.

  45. Lakshya says:

    There cannot be better sugarcoating of your limitations than this. Awestruck at defending limitations as a feature. Kudos to people who liked it..

  46. Samya Bandyopadhyay says:

    Thanks for sharing knowledge.
    When you take important decisions like restricting conversion of mis to nrml in option buying, please inform the traders beforehand.
    Why there are restrictions for exiting positions of index option buy to 2500 ?

  47. Manoj reddy says:

    Love you Nithin
    Really I get what were you saying through this post. I already lost money buying options. Hope I will never do that again.
    Thanks for your valuable suggestions
    We want more like this

  48. Girish Padmakar Kuvalekar says:

    please provide “exit at market price and cancel rest GTT orders” option in already placed GTT order.

    It is tedious and risky to cancel already placed GTT SL and place new SL-M order

    it is pretty time consuming from option buying point of view to modify 2 Prices viz Trigger price and exit price in GTT order.

  49. SHIVAM AGGARWAL says:

    i have one very basic dought
    if i bought CE of bank nifty and within a span of 2-3 days the profit of say X rupees is showing up in my zerodha portfolio section

    can i sell my CE options or i have to wait till expiry

  50. chitra says:

    Why is the GTT stop loss checkbox getting on automatically every time I place NRML order. It’s slowing down my execution speed.

  51. Vivek pathak says:

    Sir , I love the way you care about retail category and especially the need to follow risk management while trading options.

    I want to share suggestion which if you can implement in your system will help many people understanding option( buy and sell ) strategies used in options trading like “pay-off charts” .

    Although pay off charts is available in sensibull but it is paid feature .

    If anyhow it can be implemented in charts section or seperately on buy/sell window then it will helpful for traders to understand various strategy/ spreads of option and (risk and reward conditions) . I known that one should have deep technical understanding of strategies but making things simple and easier to understand is what I see on zerodha.

    Thank you

  52. Prajwal says:

    Why you zerodha is changing For collateral 18% Interest on Liquidbees
    I get a 6% on LiquidBees per year but I need pay you 18%

    • Hmm.. we don’t. Liquid bees are considered as margins. Maybe create a support ticket?

    • Sumit says:

      Zerodha is not charging interest on margin, no broker should as per guidelines. But I doubt 6% interest on liquidbees, I am holding it since last 6 months and have got merely 1%, so 2% annual, how?

  53. Kumar says:

    There are few issues we face with the recent changes. We are not able to modify price on any existing option buy orders. so if i need to adjust every time i have to exist the existing order and place new order. Also, im an option seller and i do by few options for hedges. But at times i place order as MIS order and im not able to convert them to normal. Every time i have to exit the position and re enter for which i need to pay unnecessary brokerage. Can you please try addressing these concerns.

  54. Santhosh says:

    Hello Nithin,
    Any idea of incorporating market price protection limit (set to a %) to avoid slippages/impact cost while trading far month options or even sometimes same month options ? I believe nest terminal has it, was wondering if you are planning to introduce in kite, Thank you.

    • We don’t allow market orders on fart month options, it is only limit orders.

      • Santhosh says:

        Thank you for your response, I am talking about even next month expiry where liquidity is low compared to current month. I placed a Nifty august expiry market order as a part of a strategy and the slippage was almost 5 points. If there is a market protection limit % then such things may not happen. Also it helps when unloading huge quantity as it wouldn’t execute at an artificial price spike that happens when unloading huge quantity.

  55. Damodaran says:

    Nithin,

    Let me explain what happened today!

    I had shorted position and as an option seller, I prefer to hedge my position by buying OTM options.

    I executed my trades, but later understood they were MIS order.
    I able to convert my shorted position from MIS to NRML
    But options that I bought, I have to exit and recreate as NRML. Since MIS to NRML is not allowed.

    So as an end customer it is always better to have the flexibility in the system, instead of enforced restrictions.
    Since the Mr.Market allow for buy/sell why should you impose such restrictions? And at the end of the day people like me would like to move to systems which provide more flexibility and freedom of choice.

    Or

    System should have the intelligence to understand they are naked positions or hedged positions and work accordingly.

    Definitely I appreciate the effort you are taking to educate the retailers, but same time I feel these restrictions imposed are unnecessary.

    Thanks for the detailed blog, which is very informative.

    Restricting the MIS to NRML is not a good idea, I want to hedge my shorted positions by OTM.

    • Raja says:

      @Nithin Kamath,
      This is a serious issue for option sellers, please take a note and act at earliest.

    • Unlike before there is no margin benefit of using MIS orders (after peak margins). Most traders who intend to carry positions overnight already have shifted to NRML by default. It is impossible to cover for all edge cases.

    • Nrupal Sanil says:

      Exactly!

      @ Nithin

      If you let traders the freedom to trade the way they want, good traders will survive through good risk management while bad ones will automatically go bust. Yes, try to educate the traders as much as possible, but please don’t put restrictions. By doing this you may end up hurting the good traders unintentionally. Let the natural process of survival be natural. Don’t tinker with it please.

  56. jitendra says:

    say small capital of 100k to 200k they first bound to buy a OTM options and to get into the position to sell the ATM option for avoiding peak margin penalties and if they dont allow to get buy a deep OTM position than it may be affect their profit potential and upset risk and reward ratio. How can they get rid of this….

  57. Sid says:

    Your efforts in trying to educate people about not buying options and futures would only realize when you provide them the way to short options by hedging. A retailer buys options only because he is forced to. Most traders who have a capital of 1L can’t short options first. We don’t have the capital to trade option strategies by shorting first.
    You guys have given the option to move to the alternate clearing agency to trade options, but one can’t take delivery of shares there. How is this a complete solution then? I was forced to open alternate trading account but I have been spoilt by the smooth interface of zerodha. So, I request you guys to find a permanent solution to the OI restriction.

    • I am not saying don’t buy options. But if you have Rs 1lk, don’t buy for more than Rs 5000 per trade is what I am saying. It is impossible to make money if you trade using your entire capital when buying options is what I am trying to say.

  58. Satish says:

    धन्यवाद नितिन जी । एक अच्छी सोच के साथ बेहतरीन बदलाव लाने के लिए ।

  59. Gaurav Mehta says:

    Let assume if i have ITM call of nifty 50 at 15500 and holding it overnight and next day market give gap up opening of 100 points then my trade gets stuck for about 10-15 seconds and when it starts moving again that time my profit gone down quite much as market gone down at that time..ii wanted to close my trade after market gap up opening but trade get stucked always so due to this i can’t close it with good profit.

  60. Raja says:

    Because of this feature “GTT stop loss when buying options”, not able to modify the existing buy positions as the previous one didnt have stop loss, not sure how this simple feature is released without having proper testing.

  61. Chandan says:

    Excellent post. Why Cover and bracket orders are blocked as they also limits loss. Further bracket order also avoids profit of a customer turning into loss. Wasn’t it good for retail traders?

  62. Prashanth D says:

    Feature Suggestion
    Very informative and useful for retail investors. Educate but not enforce.

    1. On a weekly expiry day (usually Thursday) most of them trade MIS for reasons like lower margin requirement and auto square off in case you miss. However, come to Next day people want to trade NRML and the system intelligently remembers previous day MIS and if the trader misses to change it (usual practice), then he would end up taking an intraday trade although he wants to trade NRML.

    The best is to allow user to set default option of MIS OR NRML under settings basis his most preferred mode of trading. Only when he needs to trade otherwise he will do it by switching the other mode.

  63. Prem Prakash says:

    Sir,
    मैंने किसी को देख कर , आपके पास अपना डिमैट खाता खोला , और लगभग तीन साल हो गए । पहले तो शेयर में इंट्राडे करके लॉस किया और एक साल में 30k का लॉस हुआ,

    फिर option buy करना चालू किया औऱ 1 साल में लगभग 1 लाख का लॉस कर लिया है जिसे brockrage 50k से ज्यादा है , फिर समझ आया के option buy करके लॉस ही होने वाला है ।
    50-50 का winning होते हुए भी ! लॉस, क्योंकि लॉस प्रॉफिट की उम्मीद में ज्यादा हो जाता है ।

    पर आज आपका artical पढ़ कर पक्का हो गया के ऑप्शन बाइंग एक जुआ है ओर कुछ । थोड़ा थोड़ा करके दीमक की तरह आपको खत्म कर देगा । मेरे साथ ऐसे कई लोग है जो आज तक ऑप्शन में कामयाब नही हुए ।

  64. Sumit says:

    When can we sell the pledged security directly, without the need to unpledge them first?

  65. Gourab says:

    Nice setup by Zerodha…
    It will be better if it shows * mark for SL for any type of orders through the system without which the order couldn’t complete. ( Exception basket orders)

  66. K N VISWANATHAN says:

    When we sell Far Out of the Money Option on Call & Put side should we take same quantity on either side or should we balance the contract value. Also does selling on Call & Put side nullify contract value if we balance the amount. Pl clarify

    • There is no one-line answer for this. Go through the options module here: https://zerodha.com/varsity/. And don’t trade until you are sure about what you are doing.

      • K N Viswanathan says:

        I have read Zerodha Varsity not once but several times. I don’t find an answer to my query in varsity. I normally sell equal quantity on Call side & Put Side for Far OTM trades & short starddles. I want to know will my margin requirement be less if I match the contract value instead of selling equal quantity. Also selling equal quantity at equidistance from ATM on either side nullify the risk.

  67. Kiran says:

    Why is the regulatory limit of 15% open interest (OI) of total marketwide OI in any F&O contract not applicable when option buying done for hedging? How does SEBI know whether the option buying is naked or for hedging purposes?

  68. Yash says:

    Hi Nithin,

    Is it possible for Zerodha to come up with an only Options Selling plan? Just like you don’t allow people to buy options of far off OTM strikes, you can restrict your customers from buying options except to square off or to hedge. Of course, this has to be a separate plan, so that people go for it by choice and learn the art of making money by selling options and keep a check on the greed to become millionaire overnight.

    • Hmm.. let me check if there is some option we can provide which will block option buying by default.

      • K N Viswanathan says:

        I too would welcomw such a move. Allow selling Far OTM options on Call side & Put side (equal quantity & equi distant from ATM at the time of taking the trade)

  69. Manish Brahma says:

    Hello sir, this is one of the wonderful article i ever read. Just wanna ask one question plzz try to reply.
    Zerodha is the indias leading stock broker, but still then it is accepting shares as collateral which carries high risk but not bank FD which carries nearly no risk. why?

    • Stocks are in Demat form and there is an approved pledging mechanism for it. FD isn’t in Demat, and the only way to pledge it is by marking it in the brokers name, it is quite a painful process. Not possible for us to offer at scale.

  70. Manish Brahma says:

    Hello sir, this is one of the best article i have read, i have just one question plzz try to answer.
    Zerodha is india’s No 1 stock broker but still then it accepts shares as collateral which carries high risk and not bank FD in which the risk is near to Zero. Why?

  71. Prakash says:

    But buying deep otms – what is the risk? Say I buy a deep otm nifty put for Rs 1,my risk is only 75rs,but my profit is unlimited.why sebi is blocking that. How will it benefit the retail.moreover of I buy otm option first,them my margin to sell is reduced.So,how this semi rule will help the retailer? It favors only the ultarrich.

    • Manish Brahma says:

      Absolutely, but out of 100 trades chances are very high that you will end up losing all the 100 trades. So, it doesn’t make any sense to take a position just to lose money.

    • Fahad says:

      Option buying is a contract which gives the right to the buyer of the option to either sell or buy stocks. The risk is limited to the PREMIUM of the Option paid. so the risk is limited to the price of the premium and reward is unlimited. Nitin please explain when you say that the risk is equal to the size of the leveraged position. we don’t quite get that logic of yours.

      • hmm.. while what you can lose is limited to the premium, how fast/easy you can lose is based on the total exposure. I am not saying don’t buy options, but don’t buy them for more than 5% of the capital. Buying options is almost like buying a lottery ticket. If you had 1lk in your bank, you would not go buy Rs 1lk worth of lottery, is it?

  72. Manish Brahma says:

    Hello sir, this is the best article i read, i have just one question plzz try to answer.
    Zerosha is India’s number 1 stock broker but still it accepts shares as collateral which contains high risk but not bank FD’s in which risk is almost zero. Why?

  73. Mahendra patel says:

    Very good article.. Only one of the broker zerodha want clients safety first… Please send this article to all clients by mail… I like…

  74. Anil says:

    Hi Nitin,
    It’s really a nice article and should have courage to write such an article even knowing it may have impact on short term revenue. I agree in a longer time frame it may benefit both traders and brokers if the traders don’t loose money. It should be an eye opener to all traders who blindly trade based on tips or gut feeling with out understanding the potential loss and risk to their capital. As a programmer my self I know how difficult and complex scenario it is to implement to execute strategies like iron Condor or iron fly with margin benefit up front with basket orders. Could you Please try to device a way by which we can get margin benefit up front if we execute these strategies with all together basket market order for index options instead of individually executing. For stocks may be because of liquidity you can do as it is now

  75. Ram says:

    Hi bro due to high volitle now a day while exiting our position in SLM entering in market order we are facing facing huge slippage…I have Placed SLM order in banknifty futures but order get executed 115 points spread of my trigger price but even underlying price didn’t move much.so like nest trading terminal we need not maximum2% slippage in execute please work on it this huge problem we face.thank you love with zerodha

    • Ram, slippage is part and parcel of options trading. If we put market protection, there are chances that your order will never execute, which is a lot more riskier. Like I have mentioned in the post, to reduce the impact, just trade with as little as possible.

      • Santhosh says:

        But that decision is something a trader needs to take on his own. I am sure people who are aware of it will use the feature. You could include market protection as an additional feature just like Market & Limit order. Trading little wouldn’t assure that there would be no slippage. I am sure you would understand a trader will have to keep in mind so many things while entering or exiting their positions and to top it if the slippage is very huge (something beyond their control), then it would hurt the trade. Kindly look into it.

  76. Satyanarayan says:

    Dear Mr Kamath,

    For every sale there is buy. If other brokers also restrict OTM buying then whom seller will sell?
    Educating the masses about risk management is better than restricting them from trade.

  77. Shankar says:

    The SL orders post adding this nudge feature seem to have a bug. It is no longer possible to modify them. I had to delete the orders and place a new SL every time. Get this checked out please.

  78. Sanjay meena says:

    Can you add a whole Type a video about how to use a zerodha kite app..

  79. Gopakumar says:

    sir,
    If far otm not allowed, then how the chain showing many far OTM, if allowed when can buy far OTM on weekly.

  80. Anirban Chatterjee says:

    How come restricitng MIS to NRML will help trader? A trader who is not willing to book loss will sell the existing MIS position & again buy the NRML position. It will increase clients brokerage charge & earning of Zerodha. Any suitable justification? I am not saying it’s your intention but really need answer.

    • Hmm.. no, I have been in this business for over 2 decades now. The biggest psychological block people have is to take that trade to book the loss. We have already seen it that people aren’t exiting MIS and buying back in NRML when in loss.

  81. mhdsharuk says:

    Hello Nithin,
    I have a suggestion for buying far OTM, to get margin, and for hedging.
    It has to be done through basket order.
    The feature would be, we would add all the buy and sell strikes for our option strategy,
    Buy position will be at the top of the list. The basket order system would automatically recognize that the far OTMs are for hedging purposes.
    If there are no sell positions, the basket orders wont execute.
    So by this method. this would automatically have benefits on retailers, and risk management would also be there

    • Haridas S says:

      Placing the sell order first and then the buy order is the only solution. I think even in a basket order, a buy order for far OTM prohibited stirke wont get executed.

      • mhdsharuk says:

        Well, If the basket system recognizes that it has a sell order in it, then it would be good right?
        So, from your reply, are you saying that even after placing a sell order in the basket at the top, we won’t able to buy **deep far OTMs** for hedging?

  82. Vishal Jangid says:

    Nice article! Basically, I follow a similar risk management strategy as well while buying options -> 1% of capital to be used per trade and SL = 10-20% of that trade value. But if capital is small then 10% of capital and SL max 10% of trade value and trailing the stop loss like crazy, never let the market catch you off guard.

  83. Haridas S says:

    I think the best option is to buy NRML and if we want we can exit intraday. Now the margin for both is same, I think.

  84. fahad says:

    Option buying is a contract which gives the right to the buyer of the option to either sell or buy stocks. The risk is limited to the PREMIUM of the Option paid. so the risk is limited to the price of the premium and reward is unlimited. Nitin please explain when you say that the risk is equal to the size of the leveraged position. we don’t quite get that logic of yours.

  85. Vishnu Bharath says:

    Nice Article. Very useful.

    i have Feature suggestion,
    In POSITIONS of kite app , showing the PERCENTAGES of profit or loss to the capital traded in kite app in real time would be a good idea, so that kite app traders can understand the loss they have to incur due to their stubbornness in terms of percentage ,Either they end with discipline or avoiding risky trades.

    and one doubt , i sold one otm option , how many otms can i buy as hedge, just one order or 1 lot or no limit?

  86. Abhijit says:

    Hi Nithin,
    I am doing purely intraday option buying with very short time frame. But the problem is with a strike price initially I got some profit. But later when I reenter @12/1pm and if I get some loss or profit it is mixed up with old profit.
    I have seen in other brokers that in a strike price if I reenter there are two columns as Realised p/l and unrealised p/l. So I can plan the trade in unrealised part to check how much risk I can play and how much profit/loss I can book by seeing the realised part. It will help me to plan the trade especially after 12pm Thursday as I start trading a lot of scalping from 12 to 3.20pm.
    Please introduce the realised and unrealised p/l part in Position tab in Kite

  87. Akshay says:

    At present, there is no option to put SL and Target, for intraday, other than executing a GTT order.
    Is there an alternative?

    Also, in the GTT , if the user can save his predefined SL and target, it could save time having to fill them from scratch in high-speed option buying.

  88. Kamesh says:

    Hi Nitin,
    I normally initiate a short straddle before 45 days to expiry in nifty. I checked in margin calculator only 200 point wide strikes are allowed. If there is violent move its difficult for us to adjust positions and that too for a positional trade in that case what is your answer.

    • Hmm.. for shorting there is no restriction.

      • Adi says:

        Shorting no restriction but hedging it with far OTM has restrictions. Which is contrary to everything you said above. An OTM strangle cannot be hedged in your platform anymore and i have moved my HNI account elsewhere. Loved your ui. Sad to go.

      • Mayank Agrawal says:

        But what about people who first buy options and then sell? It required less margin.

        • Adi says:

          You cannot do option strategies. The platform is for option buyers and newbies. If you do option strategies move to any other platform.

  89. Sunitha says:

    Hi Sir thanks for your note it’s really helpful for a beginners traders like me. I entered market with few knowledge over a time learnt more. Thanks for your support. I have a very small capital 10k and started which Gav me small profits like 1 or 2k was happy later when I added more capital borrowing around 30 k n I lost everything. After this it made me very upset😞 n just now taking break. I added more money only to solve my financial problems. But now?? No fund would be happy if zerodha support like small trader like me.

    • Adi says:

      Sunitha, with due respect, with a capital of 10K you should only trade in the cash market until you learn the games played. Take from a trader of 10+ years experience who has gone through what you have

  90. shailesh singh says:

    Hi Nitin sir,
    with due respect, please provide a edge of option seller on zerodha trading terminal. because if any one are make a strategies like option straddle or strangle etc. after that he can not put the combined stop loss in zerodha terminal and also he can not see the chart of straddle or strangle or any strategies of option. for retail trader you can help them.. and also sir you can provide a pro service of trading view in zerodha terminal.
    Because you are NO.1…..

    • Adi says:

      If you are an option seller who wants to hedge move to another platform. I was specifically told by Zerodha support that I could not buy options even 200-300 points away to hedge my CE. I said to them – but I have sold options I need to hedge them. So contrary to what Nitin is saying in this article, they do not care about option sellers. Just move. Do not waste your time. The UI is the best, but if you cannot execute your strategies or hedge what is the point. Do not believe them when they tell you that you can buy if you are selling. They will suddenly start blocking and then you either exit your position at loss or have a naked PE or CE short out there. Scary!!

  91. Adi says:

    Well, clearly Zerodha is not a platform for HNI traders like me. I have moved my 25L+ account to another broker. Reasons are as follows:-

    I trade options strategies via Sensibull. Mostly IC, IF, ratios and Calendar. One of the days Zerodha stopped allowing me to buy options for hedging anything outside 250 (15750-16000) range which meant that I had to exit out of my strangle because I could not not convert it to IC. So I disagree with Mr. Kamat’s statement that he is doing this for protecting of saving investment. If I am unable to Hedge then it is actually putting unlimited risk in my strangle.

    I would also buy intraday options for adjustments to Vega that I might need to carry overnight. Do you really think that if I know how to adjust for volatility I do not the effect of theta decay. I do. It is the cost of risk management.

    Assuming that all of us are children and don’t know what we are doing is not only preachy but rather a huge assumption.

    I am sad to go. Zerodha, without a doubt, was the best user interface among all brokers. The integration with Sensibull was fantastic. I would have preferred if they had an HNI tier that remained unless I lost 50% of the capital where there are no restrictions.

    Zerodha will eventually become an option buyers-only platform since all HNI friends I have in our group have left or are leaving. Once the Covid ends you will find that the actual traders have left the platform. People will go back to their jobs, the volumes will drop and you would have lost traders like me who trade in 100’s of lots in the day on the option strategy side and would have happily paid higher brokerage gone

    • Adi says:

      As you can see there are responses to comments even after mine but not for mine because I have clearly stated the truth. HNI and Option sellers stay away from Zerodha. Choose any other. Does not matter which.

  92. onkar havele says:

    Can you please include IV chart in Kite also? (I know it is on Sensibull)

  93. Prashant Kr Singh says:

    Very apt article on Options buying cautiously for new traders who want to become rich within a week.
    I could not hold myself to share it on LinkedIn for my network people.

    As we have seen the traders increased in last 1 yr as they have enough time to trade parallel to WFH. But what will happen when we will be back to normal working life post Covid..So this is the best time to get educated on Do;s & Don’t of Day trading in F&O.

  94. Madhan says:

    Just need an explanation of the exposure part, as stated above if I buy 1 lot nifty call at Rs.7500 roughly I am exposed to 12 lacs i.e. Risk of losing 12 lacs ?
    But generally Option buyers risk is limited to premium right.
    Correct me or please explain.
    Reference: Showing exposure in terms of the contract value
    Currently, all trading platforms typically show the margins available in the trading account and margins used, but not the overall exposure. For example, if you buy 1 lot of Nifty futures using Rs 1.5L, the exposure is Rs 12L while your margin is Rs 1.5L. Similarly, if you buy 1 lot of Nifty calls with Rs 7500 as premium, the exposure to Nifty is Rs 12L and not just Rs 7500.

    • Adi says:

      Your max loss is the premium paid, When he says the exposure is 12 lakhs, he means the price is moving with respect to 12L and not 7500. So when nifty moves by 10 points against you, you can lose half your capital depending on what your strike is and delta and vega for that strike

  95. Mayank Agrawal says:

    Banning far option allowing is the worst decision taken. Why should people trading strategies suffer? Earlier I used to buy 16500 call option and then sell 16000 call option, I required around 35-40k per lot. But now, I cannot even buy the 16500 option, I have to sell 16000 first. It will required more than double margin now.

    Time to switch broker??

    • Adi says:

      Mate, I trade in 10 – 55 lots in option selling. For me, the fact they block my hedge without warning means in minutes I could lose money. Brutally move to another platform. Zerodha is only interested in showing the number of active users to get a valuation when they go for IPO or get funding. When COVID is over, all the real traders would have left because the newbies would have burnt their fingers and stopped trading. Brokerage will be gone and Zerodha will be “reducing cost” by firing people. This will happen to all discount brokers. Not just Zerodha.

  96. VASAV DESAI says:

    I would like to appreciate the post. Apt analysis of amateur mindset.
    Zerodha Kite app is not showing realised and unrealised net P&L in positions currently. It would be of great help if both (realised and unrealised P&L) are shown separately in positions on real time basis.

  97. Anshul Tiwari says:

    Still not received my login ID and password.
    Mob. No. 9552276622

  98. SOUMYA JYOTI mitra says:

    Thanks 4 this valuable and informative article. You rightly preferred OPTION STRATEGY over NAKED OPTION to reduce the risk . But for option strategy there is always possibility of slippages because of time gap of execution of different legs and You may advocate for using basket order but my question is ” do you have any plan to integrate software like BLITZ with kite , so that whole 3/4 legs strategy ( total basket) can be placed with a single limit price and stop loss can be placed for the whole basket as a whole and not just for individual legs ?”

  99. Ajith says:

    Hi Nithin,

    First off, I am a big fan your writing and your articles on markets and trading. You mentioned that you found that ~80% of all open buy option positions are in a loss.
    ~25% of all open short option positions are in a loss.
    Since zerodha has the logs of all the trades executed everyday, do you employ algorithms to understand the correlation between the trading factors resulting in gains and losses.

  100. Nrupal Sanil says:

    Hi Nitin,

    I totally appreciate the concern shown by you. But the problem is that putting such restrictions might end by creating huge hidden risks. For example, today I found a great opportunity in selling a Nifty 15700PE and buying 2 15500PE for weekly expiry of 15th July 2021. But I couldn’t buy the 2 positions in 15500PE. I am well aware of my theta decay risk and I was prepared to take that risk.

    But what is of an even bigger concern is this:

    When I tried to execute the order through sensibull, I could only place the sell order. Once the order was complete I tried placing a buy order through sensibull and it didn’t go through! I absolutely don’t like staying unhedged in short option position even for 15 seconds! Because theta decay may make me go bust in a few months, but naked sell position can make me go bust in a matter of minutes!

    Hence, I went to kite and placed the buy order. After placing the order I realised that by default you guys have made it an MIS. Now the risk is, if I wake up late on the next trading day I stand a chance of going bust! Or, even if I wake up on time, there is HUGE Gap risk associated with my position if Nifty opens significantly below!!

    As Nassim Taleb says in Antifragile, you may be acting like the overprotective parent who is accumulating tail risks with a disguise of ‘protecting’ your customers. And just like the overprotective parents, you have extremely good intentions, but……

    • Aditya says:

      I think the intentions may not be all that altruistic. Let’s say a newbie option buyer finds OTM options “cheap” and feels the market will go up and he can triple his money. He has 1L in his account and buys the OTM options with that money in a single trade. Now the price did not go up as much as he expected in Weekly options and therefore he carries it the next day and – Guess what? He losses 20K just because of theta decay. As with newbies instead of getting out to protect capital, he stays in the trade. And eventually takes across the weekend and now loses 40K at the open. He still stays in because he believes can go from 60K to 180K and he can still come out on top if the market moves in his direction – after all, we are in a bull run and eventually loses all the money and stops trading.

      One would think Zerodha is trying to protect such guys. Given that I am a skeptic by nature, I would also look at it from this point of view. Which scenario would Zerodha make more brokerage when he loses 100K in one trade or 100K in 10 trades at 10K per trade?

  101. Sriram says:

    “The one thing you need to make sure of with GTT is to cancel any open SL or Exit GTT orders when you exit your positions directly to avoid extra positions in your account.”

    Can’t you cancel the gtt as well when we exit position? Atleast can there be a nudge or or pop up warning when someone exits a position?
    This hurt me today as I thought exiting the position will clear gtt as well. I exited my positions and stepped out only to realize gtt triggered a sell option and got into loss.
    Another suggestion: It would be good if you can add trailing stop loss to protect gains in gtt.

  102. Sumit says:

    When can we sell the pledged security directly, without the need to unpledge them first and wait for their arrival in dmat?

  103. Sailor says:

    What a pack of humbug, self-promotion as guardian of retailers, and a pack of lies. I regularly create IC / IF. In the last week I am having immense issues creating the hedge position. In fact, I shiver with fear creating one especially that most of the time, Zerodha allows to sell the index option, but rejects the far otm. Yes, Mr. Kamath, even for hedging positon.
    Yesterday, I had to convert one position to MIS to hedge my sell position. After a long call Zerodha team, from the backend they converted my position into NRML. But that was not the case for my wife’s account. She send atleast two email and tickets, but no response from ZERODHA till now.
    Moving on from Zerodha. Mr. Kamath.

  104. Krishna Prasad says:

    Hi,
    It is high time you solve this buying of far OTM options for hedging, For example in Iron condor , if we check in basket order it shows less margin with hedge, but in reality, do you allow all 4 trades to execute at one go in basket order with far OTM buy wings, If we short first and buy next, margin required is high ? I appreciate if you could explain with practical example step by step with respective margins and squaring of steps as well.

  105. GAURAV TRIPATHI says:

    sir , please look into the matter , i have been trying since long.my email activation not done because that i am not able to log in into the kite app or site.
    please active my id

    email already sent

  106. Satish says:

    Nithin

    I am a great admirer of Zerodha and how it has bought down brokerage in India without compromising quality. However nowadays your support is not up to mark. I suggest have a level 2 and level 3 support when level 1 cannot resolve and we cannot expect level 1 to understand all issues.

    I am frustrated at the lack of quality intelligent response to my ticket #20210712749949. Please get a l;evel 2 or 3 guy to look into it. Sorry to bother you but you need to relook at your support structure.

    Also suggest please introduce chat support to make up for lack of good telephone support.

    With proper support structure I guess Zerodha can go global. Thank you in anticipation of response.

  107. Shaniraje harage says:

    Meri id abhitk nahi aayi he

  108. Deepti says:

    There may be 80% traders who trade without proper understanding and lose money but in trying to be a parent to them, is it wise to make the 20% knowledgeable traders suffer in the process and end up not being able to make money? With restrictions on buying far otm options, short positions can not be properly hedged. It is like a vicious circle – to reduce margin you need to hedge by buying otm, but to buy otm you need to have short position first which can be done only if you have full margin. And many a times even if you have unhedged short positions, platform doesn’t allow to place buy order for otm. Hard to digest the parental love of Zerodha.

  109. Navin says:

    Why limit not provide me in bank nift why margin block while placing the order

  110. Samir Palit says:

    Hi Nithin,
    On 26-July-2021 when Nifty spot was trading around 15860 I bought one lot of Nifty Aug21 future @15883. Then tried to hedge it buying one lot Nifty Dec21 15000 PE. Kite did not allow me to do so and showed an error message “Buy orders for this strike price is blocked due to OI restrictions prescribed by SEBI…”. This strike price has around 18,000 OI at the time of order execution. I did open a support ticket (#20210708205486) but did not get any other detail other than what was shown by the error message. Request you to please clarify if OI restriction will still apply for this strike price in which OI is only around 18,000 contracts.

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