Stocks

"Deep OTM option traders, beware the 20% extra margin"

KS Badri Narayanan Chennai | Updated on October 14, 2019 Published on October 14, 2019

Deep OTMs are strikes that are 30 per cent away from the underlying price at the time of the trade

If you are trading in deep out-of-the money options, then you have to pay an extra 20 per cent as a margin.

In a circular, the National Stock Exchange has said the additional margin of 20 per cent on the notional value should be levied and collected from the clearing member in case an entity trades in equity derivative stock option contracts and create a new short position in the deep out of the money (OTM) strikes.

Deep OTMs are strikes that are 30 per cent away from the underlying price at the time of the trade, NSE said.

Giving an illustration, the NSE said, for the underlying price of ₹100, 130-strike call option and 70-strike put option would attract a margin of 20 per cent.

This additional margin should be levied on the top 10 clients if they account for more than 30 per cent of the overall short positions on the trading day (to be computed in respect of call and put options separately), NSE circular further added.

The amount should be collected from the collaterals of the clearing member on the end of the day basis, it added

The margin should continue to be levied on the clients till the contracts are squared off or till the expiry.

Published on October 14, 2019
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