Can we short a CALL option ?

Hi All,

Today i tried to short a CALL OPTION,but it is populating a message " Sufficient funds are not available" in both ICICIDIRECT and KARVY but i am having more than sufficient funds.
I have a basic query can we short a call option or not?.


Thanks

Thanks for the prompt reply.But can u explain briefly.

Suppose today i tried to short the following CALL option

NIFTY OPTIDX 31-Dec-2009 5,100.00 50 117.00 Call

so for buying a CALL option 50* 117.00 = Rs 5850/- is sufficient.
for Shorting how much minimum balance do i need to maintain? and also it will be more helpful why we have maintain more limit for shorting than long CALL?


Thanks

Mahi, It is good that your short order was rejected. Option shorting is risky game and one should not venture into it untill one understands and ready to accept the risk involved with it.

For shorting 5100 Call, you might need margin of about 30 to 35k.. (chk with your broker directly cause it varies from broker to broker).

More importantly, you need to understand the risk involved in this shorting.
Plz spend time and understand what will be your profit or loss when nifty goes to 5300 / 5000 or 5150 etc.

and what will happen to your margin requirement from broker. Else at some stage, due to lack of margin funding, broker can close your position and you take the whole loss.

Happy and safe trading

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Thanks a ton for the Valuable suggestions and Concern. I will analyse a little deep before proceeding further...

Here is how it works... you shorting 5100 call which means you are ready to Sell NIFTY @ 5100 on 31 Dec. irrespective of what is the spot level. If spot is below 5100 then you are fine and no risk involved and your broker could have allowed you to sell at just the premium cost.... but take it otherwise.. what if Spot reach 5400-5500? You have to pay 300-400rs premium to cover the cost which means 300x50 = 15000

So do you think it makes sense that broker allow you to short it by just paying 5000 where the risks are unknown.. NO. It will block some percentage of the cost.. now how the cost is calculated..

Actual cost is like this..
5100 x 50 = 255000

but for Futures you need not to pay entire sum but furnish with some token amount ranging from 8% to 15% of the cost... most broker charge around 12% so lets take that as example..

255000 x 12% = 30,600/-

You need to have around 31000 to sell 1 lot of 5100CE which will give you a premium of around 140 back... ie. 140 x 50 = 7000.. you may reduce this amount from your margin requirement. but ask yourself why are you selling 5100 call ? your max gain will be 7000 but losses are virtually unlimited unless you know how to hedge your position.

So, instead of selling a Option... better sell Futures if you have to for the same cost but limited risks.

Hope that makes it clear.

One more thing... you do not pay the premium while selling... so if its trading at 150 then you are receiving the premium (150x50) in return for selling the contract. Its the buyer who pays this premium.

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