Low Risk Options Trading Strategy - Option Spreads

[naicktradeji]

HAI CAN U EXPLAING WHEN one can buy call and sell call, and buy put and sell put?

 

[AW10]

HAI CAN U EXPLAING WHEN one can buy call and sell call, and buy put and sell put?

Sorry, I am not sure if I have understood your question correctly.

One can buy/sell option at any time during market hourse i.e. 9:55 am o3.:30pm. You just need to have sufficient funds in your trading account.

Plz rephrase your question, if you were expecting different reply.

 

[prashyrao]

Hi Experts,

I need some information regarding margin requirements at NSE. I have read one of their FAQ documents, but couldn't get answer to all my questions. Kindly help me here:
1. If I have sold a position (either Options or Futures), but if I already have bought a protective position (hedge, with no downside risk, like buying an at the money put on long futures), do I still need to provide a margin? Or only a minimal margin?
2. If ans. for 1 is that I do not need to, then, how will NSE ensure that I hold my protective position till the end?
3. I read that they do provide the margin waiver on a calendar spread, but will remove it three days before the expiry. I'm puzzled, what does this mean?
4. Can a broker have a different rule than NSE (more strict or lean)?
5. If I have a verical spread (net credit), how is the margin calculated? In other words, do they consider me holding a multi-legged position while calculating the hedge / margin?

Thanks a lot. @AW10, any help is appreciated.

 

[AW10]

1. If I have sold a position (either Options or Futures), but if I already have bought a protective position (hedge, with no downside risk, like buying an at the money put on long futures), do I still need to provide a margin? Or only a minimal margin?

As far as I know, brokers do enjoy the facility of netting their obligation and paying the margin to Exchange only on net position. But this netting is not extended to retail clients. i.e – you pay margin for short option position, but even if u have long option position that reduces the risk, brokers ignore the safety extended by long position and still charge the full margin.
Though in western mkt, spreads or hedged positions for retail clients get requires lower margin.

For futures, if you have long current month, and short next month (which is calendar spread), so enjoy the benefit of lower margin.. but as near month contract comes to expiry, the safety net gets removed and hence your position risk increases and hence the margin requirement too.

2. If ans. for 1 is that I do not need to, then, how will NSE ensure that I hold my protective position till the end?
3. I read that they do provide the margin waiver on a calendar spread, but will remove it three days before the expiry. I'm puzzled, what does this mean?
5. If I have a verical spread (net credit), how is the margin calculated? In other words, do they consider me holding a multi-legged position while calculating the hedge / margin?

I think these 3 questions got answered above.

4. Can a broker have a different rule than NSE (more strict or lean)?

Yes. Brokers are free to charge higher margin because of their own risk mgmt requirement. Some brokers who are aggressive, go bit loose on this (but generally not below the exchanges required limits).. and other conservative brokers charge more. This practice is globally true. In US mkt, for one mini S&P500 – where few broker charges around 2k to 2.5k USD, there are other brokers charging just 400 to 500 USD.
As everything is negotiable in life.. why not negotiate this too with your broker ?

Hope this answers your queries. These are as per my understanding of margin system and I hope I am not wrong. But if someone finds anything wrong, then pls highlight here.

Happy Trading

 

[abhiwhy]

, my broker (india infoline) do not demands extra margin for hedge positions , for example ,if u have writed (shorted ) call option and if for its protection u take long position in nifty , nifty margin would not be applicable because position is hedged and with little risk , but u need to pay only mtm loss (if any), and it is available to all retailer clients u will need full margin only when u r making hedged positions by buying two options i.e., one call and one put , also maximum brokers provides such facilities but u need to call ur rm and discuss such position ,and that order is directly put on neat terminal .

 

[prashyrao]

, my broker (india infoline) do not demands extra margin for hedge positions , for example ,if u have writed (shorted ) call option and if for its protection u take long position in nifty , nifty margin would not be applicable because position is hedged and with little risk , but u need to pay only mtm loss (if any), and it is available to all retailer clients u will need full margin only when u r making hedged positions by buying two options i.e., one call and one put , also maximum brokers provides such facilities but u need to call ur rm and discuss such position ,and that order is directly put on neat terminal .

Hi AW10, Abhiwhy,

Thanks a lot for the answers

@ Abhiwhy: can you please also let me know how much brokerage do you have to pay for FnO in india infoline?

 

[abhiwhy]

Hi AW10, Abhiwhy,

Thanks a lot for the answers

@ Abhiwhy: can you please also let me know how much brokerage do you have to pay for FnO in india infoline?

i m paying 0.01% and 0.10%(my volume is relatively very high ) ,and rs 30 / lot option , but u can easily get 0.02 % even if u generate no or very small volume , in cases where ur vol is fair u can get around 0.015 % and 0.15%.

 

[AW10]

Abhi, Thanks for sharing the input. Could u plz let me know how much margin would it need to Short a Call say 5000 call and buy 4900 Call. It is bullish call spread.
Generally borkers charge same margin for this and for a simple 5000 Short call trade.
Is it two different amount at india Infoline or the same amt.

if u have writed (shorted ) call option and if for its protection u take long position in nifty , nifty margin would not be applicable because position is hedged and with little risk

It might be a surprise, if I tell u that this position is same as NAKED SHORT PUT position ? The risk profile of this is exactly same as that of a short put i.e. you are protected for downfall only
till the limit of premium u have recieved by selling call.. Beyond that.. the risk is open..

Happy Trading

 

[PSVR]

Hi,

I am using ICICIDIRECT and there seems to be no Option Spreads available.
Does this mean do we need to execute the two parts of Spreads as two different trades and will it yield the same benefits of Option Spreads?

Please let me know.

PSVR

 

[AW10]

ICICIDirect has option of placing Strategy order.. where u can mention 2 legs of 2 rows of order form. But it is pathetic interface. U also need to give the limit price of each leg.

My suggestion will be to keep spread trade planning and trade execution as two seperate task. Plan you trade, and then to put two independent trades, one for each leg. And once in the trade, manage the position as per your plan.

This is a bit painful process (no different with any other Indian broker too).. but workable solution. Just keep 1 or 2 points margin for slippage due to this approch of order execution.

Happy Trading