“Security is not permitted to trade in this market“, this is a common message that you might have come across while trading options in Zerodha Kite. But have you ever wondered why you cannot trade at a certain strike price? Is there a Zerodha strike price range? If yes, what it is, and why the broker has set certain restrictions?
Let’s learn about the allowed strike price range in Zerodha and how it is beneficial for option traders.
Why Zerodha Not Allowing OTM Options?
If you already using the Zerodha Kite platform to trade in options, then you might have come across one or multiple times, that the broker does not allow you to buy certain OTM options.
Now before moving ahead, let’s first provide you an understanding of the deep OTM strike price. In an option chain, there are OTM strike prices that are far from their spot value. These strike prices have low option premium in Zerodha but at the same time have the least liquidity.
This often leads to the loss of options buyers who entered in the trade with low capital. This is the major reason why there is a Zerodha strike price range.
Other than this, as per the exchange rule, there is an upper limit on the open interest in options data for both futures and options contracts. The strike price with OI equal to or more than 500 Crores or 15% of the total OI whichever is higher is the riskiest and is therefore restricted for trading.
Wondering which strike prices are available for trades, then here is a simple rule. You are allowed to trade in 5-1-5 strike prices of call or put option and is restricted above 10-1-10 strike prices.
To get clarity on this, let’s take an example:
For example, a stock XYZ is currently trading at ₹5100 with a step value of 100 in Zerodha option chain. Here with the maximum of 10-1-10, you are allowed to trade in 4100-6100. If the price increases to ₹5200, then the tradeable strike price would be in the range of ₹4100-₹6200.
Placing a trade in the strike price above or below this limit would be automatically rejected.
But here is another question, Is Deep OTM restricted for both buying and selling? Is there a range for both intraday and overnight trades?
Let’s find a clear answer.
Do you have questions about what trade is permitted and what is not? For clarification on this idea, keep reading.
Buying deep OTM options are restricted for an overnight position.
You can sell any option without any restriction in strike price for both intraday and overnight trades.
You can take as much as a long position that is equal to the short position of your current holdings.
The restriction in the trade will be displayed with the Nudge Popup on the order window.
So, if you are facing an issue of not being able to take the position in the deep OTM options then this is just to minimize your risk involved in option buying.
But yes, here is the restriction is as per the guidelines and the type of position you are trying to take in the app.
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