It is never enough to emphasize the fact that options trading is going to gain great popularity in the coming times. If you have a Zerodha demat account, you must be wondering about the Zerodha option selling margin.
Option selling is considered to be an expensive run when we look at options trading. But if you are still wondering, what is the meaning of option selling, let us clear your doubts.
Whenever you are entering an options contract, there is one trader who is paying the premium and on the other hand, one is receiving the premium. So the person in the option contract who is receiving the premium is doing option selling and thus is known as an option seller.
Now you should also note that in the case of a call option, the seller is receiving the premium but in the put option, the buyer receives the premium and hence becomes the option seller.
Let us now move on to the nitty-gritty of margin in option selling in Zerodha.
Does Zerodha provide Margin for Options Selling?
If you are also looking for an answer to the question, does Zerodha provide a margin for options, then the answer is YES!
Zerodha provides a margin for options. This is the leverage that is provided by the broker. Zerodha gives 2X leverage on exposure margin to the traders. In this way, the traders can use it and sell options to make better profits.
This is the leverage that is provided by the broker to the traders, but when you are doing option selling, there has to be a minimum margin that a trader must hold in his account. Let us now have a look at that.
How much Margin Required for Option Selling in Zerodha?
Whenever you are doing option selling, you have to keep some amount in your trading account to move further with the order. But what is the mindset of an option seller?
An option seller in the case of a call option is bearish.
In the case of a put option, the option seller has bullish sentiment.
Option sellers enter the market with an objective to earn benefits from the market.
Now, there are certain conditions when the margin required for option selling can differ in Zerodha. The first thing that a trader should keep in mind is that, when using the margin calculator, the total margin that is displayed is the margin including the premium that you will receive.
The more you move away from the strike price, the less your margin becomes. This means that you require less margin for ‘out of the money options.
Let us take an example of the bank nifty. If we are selling the call option of bank nifty at a strike price of ₹36,100, when its current market price is around ₹36,000, then the total margin required is ₹1,86,891.
But when we sell the same call option for a strike price of ₹37,000, then the required margin in your account should be ₹1,21,634.
So the farther you go from the current market price, the lesser margin you need.
The second thing that should be kept in mind is that the exposure margin remains the same in all cases, be it the strike price of ₹36,100 or ₹37,000. Like in both of the above cases, the exposure margin is ₹17,934.
If you want to sell options with less margin and also want to cap your losses, then you can hedge your options. It means that you can sell a call option and simultaneously sell a put option as well.
This is beneficial because if you sell both of them separately, you will be required the margin twice the time, but when you sell them simultaneously, then the margin will be less.
For example, if you sell a put option for the strike price of ₹36,100 and sell a call option for the same strike price, the collective margin required will be 1,74,130, giving you a margin benefit of ₹1,22, 537.
This is the margin required for option selling in Zerodha.