sorry to interfere ravi bhai, i don't have knowledge of options but what i read and understood is that zerodha mentioned that the funds received by option writer as premium is allowed as available funds for taking additional positions and traders use it to write more and more options with that availability of funds and put brokers at risk.Is this possible ??
Zerodha - Number One Discount Broker in India
- Thread starter Traderji
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sorry to interfere ravi bhai, i don't have knowledge of options but what i read and understood is that zerodha mentioned that the funds received by option writer as premium is allowed as available funds for taking additional positions and traders use it to write more and more options with that availability of funds and put brokers at risk.Is this possible ??
Ravi,
Don't want to discuss about this anymore, all these posts here look more like slandering rather than you looking for a solution, because if you were you'd have wanted to talk about it personally and not a public forum.
Let me give a last shot at explaining the situation to you,
You have 3lks in your account as cash, you have received 4lks as premium by writing deep in the money call options and taken a position worth 8lks with those 3lks in your account.
Assuming you have taken 30 lots short deep ITM nifty with these 8lks, you will be loosing 1.5lks for every 100 point jump in nifty and also the fact that this is deep ITM the spread is so large that you loose atleast 30 points on the spread. If Nifty bounces more than 200 points and heading into end of day where it might bounce a lot more next day, that could mean a potential loss of 4 to 5lks out of which only 3lks is yours, the rest would be Zerodha's.
Your query about you not knowing how much premium is in your account is hmm, all you have to do is multiply the lotsize and yesterdays closing price of the option, that is the premium available in your account, if you didn't know this I am sorry, but usually most brokers backoffice in India doesn't show this after T+1, because now that premium is credited to your account. we are working on providing a new backoffice which has got the works, will make sure that it shows up on that.
my question to you is, put yourself in the shoes of us as a broker and let us know would you let this happen and take that risk.
Your question now might be, why do you let me get so much premium in the first place and also use terms like unscrupulous,
@Ravi, what you have conveniently not mentioned on this forum is the call we had(Sachin), when you started the business with us. You may not remember, but I clearly do where you gave me the story of how you have traded across the world and you don't understand the logic in which option writing margins are blocked in India.
I had told you that because most of us are traders at Zerodha, we understand that risks of option writing is lesser than that of trading futures and we block lesser margins and you get that benefit.
This benefit is given to help traders rather than abuse the benefit. If you probably go to one of those so called big brokers, you would never in the first place be allowed to write to receive so much premium, so you'd probably have been allowed to take 6 to 8 lots with your 3lks, that is if they allowed you to write deep in the money option( a lot of big names don't allow you to write them at all).
You are welcome to stop trading with us and move brokerages, please do, so that you can understand the benefit we are trying to provide. If you move to a broker whose risk management doesn't understand this, then god bless that brokerage firm.
If you want to know how much exactly the margin requirement is for such deep in the money option ,send me an email([email protected]), I will make sure that as a special case we set the rule for you to know. But since you are already running a position where you have pocketed the premium, you would have to first exit it, for you to know that exact impact.
All said and done, we will give this benefit for writing option, because there are thousands of our clients who use it. Yes if markets get volatile, we get strict about it and pare down the positions which won't cause us an unwarranted risk, if markets gap down 5% in the morning, we will do this paring down positions by 10 am or anytime during the day.
There is no point discussing all this on a public forum, you might have the time, but we are working hard and I just spent half an hour on a hard earned holiday writing this here. You know the rules now, if you want to talk send an email and I will call you back, but let us stop wasting each others time here..
Best of luck,
Don't want to discuss about this anymore, all these posts here look more like slandering rather than you looking for a solution, because if you were you'd have wanted to talk about it personally and not a public forum.
Let me give a last shot at explaining the situation to you,
You have 3lks in your account as cash, you have received 4lks as premium by writing deep in the money call options and taken a position worth 8lks with those 3lks in your account.
Assuming you have taken 30 lots short deep ITM nifty with these 8lks, you will be loosing 1.5lks for every 100 point jump in nifty and also the fact that this is deep ITM the spread is so large that you loose atleast 30 points on the spread. If Nifty bounces more than 200 points and heading into end of day where it might bounce a lot more next day, that could mean a potential loss of 4 to 5lks out of which only 3lks is yours, the rest would be Zerodha's.
Your query about you not knowing how much premium is in your account is hmm, all you have to do is multiply the lotsize and yesterdays closing price of the option, that is the premium available in your account, if you didn't know this I am sorry, but usually most brokers backoffice in India doesn't show this after T+1, because now that premium is credited to your account. we are working on providing a new backoffice which has got the works, will make sure that it shows up on that.
my question to you is, put yourself in the shoes of us as a broker and let us know would you let this happen and take that risk.
Your question now might be, why do you let me get so much premium in the first place and also use terms like unscrupulous,
@Ravi, what you have conveniently not mentioned on this forum is the call we had(Sachin), when you started the business with us. You may not remember, but I clearly do where you gave me the story of how you have traded across the world and you don't understand the logic in which option writing margins are blocked in India.
I had told you that because most of us are traders at Zerodha, we understand that risks of option writing is lesser than that of trading futures and we block lesser margins and you get that benefit.
This benefit is given to help traders rather than abuse the benefit. If you probably go to one of those so called big brokers, you would never in the first place be allowed to write to receive so much premium, so you'd probably have been allowed to take 6 to 8 lots with your 3lks, that is if they allowed you to write deep in the money option( a lot of big names don't allow you to write them at all).
You are welcome to stop trading with us and move brokerages, please do, so that you can understand the benefit we are trying to provide. If you move to a broker whose risk management doesn't understand this, then god bless that brokerage firm.
If you want to know how much exactly the margin requirement is for such deep in the money option ,send me an email([email protected]), I will make sure that as a special case we set the rule for you to know. But since you are already running a position where you have pocketed the premium, you would have to first exit it, for you to know that exact impact.
All said and done, we will give this benefit for writing option, because there are thousands of our clients who use it. Yes if markets get volatile, we get strict about it and pare down the positions which won't cause us an unwarranted risk, if markets gap down 5% in the morning, we will do this paring down positions by 10 am or anytime during the day.
There is no point discussing all this on a public forum, you might have the time, but we are working hard and I just spent half an hour on a hard earned holiday writing this here. You know the rules now, if you want to talk send an email and I will call you back, but let us stop wasting each others time here..
Best of luck,
Ravi Bhai, I have nothing against you but I am very glad that this interaction happened and the out coming result is that I am very much satisfied with my broker Zerodha's RMS policies.. Not allowing pyramiding of positions safeguards' the interest of other clients... Remember that you are not the only client of Zerodha.. Our money is also invested with them..
The broker has no motive to square off client positions randomly for no reason unless there was a margin call.
Even when trading futures, the margin required is around 23-28K for Nifty but it is always wise to keep 40K for margin calls.
I only trade options. I either buy options or I trade option spreads. I never write naked options.
I have heard of professional market makers writing OTM options or ATM options which they think will expire worthless but they have extremely deep pockets and can deal with losses.
But to write unhedged deep ITM options is the stupidest trade I can think of. Frankly, brokers shouldn't allow such things in the first place.
Even when trading futures, the margin required is around 23-28K for Nifty but it is always wise to keep 40K for margin calls.
I only trade options. I either buy options or I trade option spreads. I never write naked options.
I have heard of professional market makers writing OTM options or ATM options which they think will expire worthless but they have extremely deep pockets and can deal with losses.
But to write unhedged deep ITM options is the stupidest trade I can think of. Frankly, brokers shouldn't allow such things in the first place.
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