A Beginner's way to trade options.

[sameer999]

Not really. M2M losses are adjusted every day so they wont be permanent. Assume that due to sudden/rapid movement of spot to 4600, ce4700 price goes to 120 (with 2 weeks left in your example it cant be more ). So your M2M loss will be (120-30)*50 = 4500. So you would need 4500 extra along with your initial margin to hold this position which is not too much compared to the margin.
Say next day the loss becomes 3500 due to spot moving down. Your 1000 of 4500 paid becomes free to use.
It's always better to leave a little more than the margin requirement to handle M2M losses. Ofcourse naked options should be written only in examples

so u mean to say that at expiry if niftys position is in my favour , then M2M has no meaning?

Will all the M2M losses be refunded back to me?

 

[AW10]

Sameer, as I understand it, in simple terms, M2M profit/loss is just intermediate accounting entries. Your real P&L from trade (that affects your real cash balance in account) is based on your entry price - exit price. M2M is just intermediate entries which gets adjusted everyday for margin calculation, nothing more then that.
When the position is finally closed, u get you get the real monetary difference in account balance.

Happy Trading

 

[sameer999]

Sameer, as I understand it, in simple terms, M2M profit/loss is just intermediate accounting entries. Your real P&L from trade (that affects your real cash balance in account) is based on your entry price - exit price. M2M is just intermediate entries which gets adjusted everyday for margin calculation, nothing more then that.
When the position is finally closed, u get you get the real monetary difference in account balance.

Happy Trading

Hi AW10 , so M2M is only the amount locked for margin. So no worries about M2M , only need to hav sufficient margin funding to keep the position open.

 

[AW10]

Yes, If you missout on that then you are giving control of your account to yr broker who can squareoff your position to reduce their risk. Generally their risk mgmt system are smart enough to monitor the margin on real time basis.. And most of the time you get worst price during such squareoff.

My view on margin call, Never meet them by funding more money. If required, reduce the margin requirement by cutting the position completely or partially (if you still think, without any emotional involvement, that the position still makes sense).. else let borker cut the pain of holding loosing position for me and help me overcome my emotional problem in trading.

Happy Trading

 

[hills_5000]

HI again,

Say i am long on nifty...as nifty starts going up daily ... the daily margin also goes up...right ?... so am i ( the RMS) locking up more as margin everyday OR it's just the margin which was locked in when i bought the Nifty?

regards

Yes, If you missout on that then you are giving control of your account to yr broker who can squareoff your position to reduce their risk. Generally their risk mgmt system are smart enough to monitor the margin on real time basis.. And most of the time you get worst price during such squareoff.

My view on margin call, Never meet them by funding more money. If required, reduce the margin requirement by cutting the position completely or partially (if you still think, without any emotional involvement, that the position still makes sense).. else let borker cut the pain of holding loosing position for me and help me overcome my emotional problem in trading.

Happy Trading

 

[AW10]

On long option positions, there should be no margin charged by your broker. It is applicable to only Short option position where trader is taking the obligation. On behalf of
trader, your broker has obligation to pay the money to Exchange whenever asked for.

Hence they block some amount to safegaurd their interest (and nothing wrong in that).
As option buyer, you hold the right in your hand. hence no obligation for broker.

Happy TRading

 

[findvikas]

That's why I prefer buying puts instead of writing calls - as you know your max loss before you trade.

 

[lazytrader]

That's why I prefer buying puts instead of writing calls - as you know your max loss before you trade.

Buy puts and writing call have only one thing in common - they are bearish. There is nothing else common, as such, they can't be employed alternatively. One is better than the other depending on the situation.

 

[lazytrader]

On long option positions, there should be no margin charged by your broker. It is applicable to only Short option position where trader is taking the obligation. On behalf of
trader, your broker has obligation to pay the money to Exchange whenever asked for.

Hence they block some amount to safegaurd their interest (and nothing wrong in that).
As option buyer, you hold the right in your hand. hence no obligation for broker.

Happy TRading

AW, if I am not wrong if the exchange specifies a margin for futures lets say 15% for nifty then the 15% has to be maintained day to day, at least that's what I read somewhere. However there is no additional margin required as long as the position doesn't go against you.

Reason is - eg long NF 4000 when Nifty is at 4100 you make a profit of 100 but the margin reqd rises only by 15 (15% as in e.g.) so you get a credit of 85. But if the position goes against you then you require additional margin for M2M.

Whatever the reason, as mentioned earlier, those who can't maintain a balance in the ledger to service M2M shouldn't hold overnight positions atleast if no completely stay away from leveraged instruments.

 

[sameer999]

AW, if I am not wrong if the exchange specifies a margin for futures lets say 15% for nifty then the 15% has to be maintained day to day, at least that's what I read somewhere. However there is no additional margin required as long as the position doesn't go against you.

Reason is - eg long NF 4000 when Nifty is at 4100 you make a profit of 100 but the margin reqd rises only by 15 (15% as in e.g.) so you get a credit of 85. But if the position goes against you then you require additional margin for M2M.

Whatever the reason, as mentioned earlier, those who can't maintain a balance in the ledger to service M2M shouldn't hold overnight positions atleast if no completely stay away from leveraged instruments.

AW10 , meant to say that in case u are long on nifty and if nifty rises, then no additional margin would be charged other than placed initially when buying the call.

Also, in CE4000, when nifty spot rises to 4100, then profit is not 100 , it would be som 25-35 points of premium rise which depends on the volatility , time left to expiry etc.

So when nifty rises up, our position is in profit, M2M also is in profit.
no need to place additional margin as long as position is in profit.



correct me if i am wrong.