Zerodha is a Bengaluru based discount broker. In order to do Zerodha options trading, one is required to have a trading anddemat account with it. They offer the services related to equity, commodities and currencies options trading.
Remember, option trading has its own complexities and challenges. However, the discount broker here i.e. Zerodha tries well with its array of services so that the overall trading experience of its client(s) stays optimal.
Now, let us try to understand the details around brokerages and other charges incurred while doing Zerodha options trading with the help of the following table:
Zerodha Options Charges
Flat Rs. 20 per executed order
0.05% on Sell Side(on Premium)
Transaction / Turnover Charges
NSE: Exchange txn charge: 0.05% (on premium)
₹5 / crore
18% of Brokerage + Transaction charges
0.003% or ₹300 / crore on buy-side
What do these charges imply?
Well, here is a quick explanation:
Brokerage is levied by the stockbroker. In this case, it is Zeordha which has a maximum brokerage cap of ₹20 per executed trade.
STT or Securities and Transaction tax is levied by the stock exchange on which the order has been placed (NSE, BSE etc)
Transaction charges are also levied by the exchange.
GST or Good & Service Tax is levied by the Central government of India
Stamp charges are levied by the state government
This needs to be noted that the stamp duty charges vary from state to state. In order to view and calculate all the brokerages and other charges, you can use the Zerodha brokerage calculator which can be accessed online easily.
Zerodha Options Margin
Now, let us discuss the margin requirements one needs to be aware of while you trade options on Zerodha platform.
Buying Of Options – While buying calls or puts, a trader’s trading account must have the required premium in it. There is no additional leverage provided by Zerodha on buying equity and currency options.
Zerodha options can be bought through NRML and MIS product types but it is recommended to use NRML type as MIS positions are automatically squared off at 3:20 pm.
The premium of options required to be there in a trading account is the sum of two numbers :
The intrinsic value of the option – It is the current value of the option. In simpler terms, it can be seen as the payoff amount a trader will have if he/she decides to exercise the option right now. For example – a ₹90 call option on a stock with the current market price of Rs. 100 simply implies a positive payoff of ₹10.
Time value of the option – It is the potential increase in the option value over a period of time.
One should be careful while placing market orders in case of illiquid contracts where the difference between the last traded price and ask price is large.
In these cases, the trade will be executed at market price even if the funds in the account are not sufficient. A trader should immediately deposit required funds in the trading account then.
The Zerodha margin calculator has a comprehensive and exhaustive list of all stocks along with the MIS and CO / BO margin/leverage. It can be accessed online.
Selling of Options – Margin requirements for shorting or selling options depend on many factors like expiry, volatility, etc. Writing or selling options can be done using either NRML or MIS product types.
The comprehensive Zerodha margin calculator will give the details of the span, exposure margin, premium receivable and total margin. Let us understand this with the help of an example.
Say, a trader wants to sell NIFTY options at a strike price of ₹11,000 and expiry of August. The margin and premium will be calculated as shown in the picture below:
One should be careful while placing doing Zerodha options trading as the order may get rejected due to many reasons like Insufficient margin in the trading account, Incorrect usage of Order type, etc.
So, whenever an order is rejected, one can check the reason by clicking on the “Rejected” status button in the order book.
In order to get the margin amount from one’s existing shares, one can pledge those shares. For this purpose, a Power of attorney (POA) is needed. A POA is a legal document that is used for giving legal authority to another person to operate one’s account according to the instructions provided in it.
POA is used to debit shares from one’s Zerodha demat account when he/she wants to sell shares or pledge them in order to get margin for Zerodha options trading.
Zerodha Options Strategies
Now, let us discuss three of the most common options strategies in place.
This strategy includes buying stocks and writing call options simultaneously on those shares. This strategy is used when a trader wants to hold a stock for short term and has a neutral opinion about the direction of the price movement of the stock.
The covered call strategy is advantageous in the way that it generates an income in the form of call premium. It also hedges risk from the decline of the stock price.
Married Put Strategy
This strategy acts as an insurance policy when one is holding some stocks. It involves buying of stocks and simultaneous buying of put options for those stocks. This strategy protects an investor from a decline in price movement.
Although is the price of the stock does not fall, then, the premium paid by the trader would be lost.
This strategy involves simultaneous buying of a call option as well as put option of the same stock at the same strike price and the same expiry date. This strategy is played by those who anticipate large movements in stock prices but cannot be sure of the direction in which stocks prices would move.
Loss is limited in this strategy to the premiums paid for buying of call and put options whereas the profits can be unlimited.
Zerodha Options Orders
1. Market order – This order is placed to be executed at exactly the market price at that instant.
2.Limit Order – This order is placed to be executed at a specified price or better.
Bracket orders are used for limiting one’s losses through 2 opposite-side orders. One can enter a new position with a target or exit through the trade and a stop-loss order.
When the main order is executed, 2 more orders of target and stop-loss are placed automatically by the system. Therefore, if one order out of them gets executed, the other gets cancelled automatically. A trailing stop loss option is also available in this category.
Example – Let us see an image of bracket order being placed for selling Heromoto Corp. August options at 2700 strike price.
4. Cover Orders:
These orders are necessarily accompanied by stop-loss orders. In these, buying or selling of options can be done through market and limit orders both. Since a stop loss is always mentioned, it reduces the risk and thus requires less margin.
Zerodha allows cover orders for National Stock Exchange / (Equity, Futures and options, Currency) and MCX.