What are options?
Options are derivative contracts between two parties where the buyer has the right but no obligation to buy or sell the underlying asset at a specific price on a specified day in the future. The seller, however, has an obligation to execute the contract should the buyer choose to exercise their right.
What is Options Trading at ICICIDirect. com?
As a customer of ICICIdirect now, you can trade on index and stock options on NSE. It comes with a comprehensive tracking cum risk management solution to give you enhanced leveraging on your trading limits. In options trading, you take buy/sell positions in index or stock(s) contracts expiring in different months with various Strike Price. If, during the course of the contract life, the price moves in your favor, you make a profit. In case the price movement is adverse, you incur a loss. To take the buy/sell position on index/stock options, you have to place certain % of order value as margin. With options trading, you can leverage on your trading limit by taking buy/sell positions much more than what you could have taken in cash segment. However, the risk profile of your transactions goes up.
What is a Call?
Call is the Right but not the obligation to purchase the underlying Asset at the specified strike price by paying a premium. The Buyer of a Call has the Right but not the Obligation to Purchase the Underlying Asset at the specified strike price by paying a premium whereas the Seller of the Call has the obligation of selling the Underlying Asset at the specified Strike price.
What is a Put?
Put is the Right but not the obligation to sell the underlying Asset at the specified strike price by paying a premium.The Buyer of a Put has the Right but not the Obligation to Sell the Underlying Asset at the specified strike price by paying a premium whereas the Seller of the Put has the obligation of Buying the Underlying Asset at the specified Strike price.
What is a strike Price?
It is the Price at which the underlying Asset is Agreed to be Bought or sold.
What is a premium?
Premium is the downpayment the Buyer of Call or Put is required to make for entering the options agreement.
What is a European option?
These options give the holder the right, but not the obligation, to buy or sell the underlying instrument only on the expiry date. This means that the option cannot be exercised early. Settlement is based on a particular strike price at expiration. Currently, in India index and stock options are European in nature.
On which exchanges will I be able to buy and sell in Options market?
To begin with, ICICIDirect offers its customers execution capability on the National Stock Exchange of India Ltd. (NSE).
How is Options trading different from Futures trading?
In case of Futures the Buyer has an unlimited loss or profit potential whereas the buyer of an option has an unlimited profit and Limited downside. The Seller of a Futures has an Unlimited loss or profit potential but the seller of an option has a Limited profit but Unlimited Downside.
How is Options Contract Defined?
An European Put ACC Options expiring on 30 May 2002 with a strike price of 150 is described as OPT-ACC-30-May-2002-150-PE.OPT denotes Option, ACC is the underlying, 30 may 2002 is the expiry date of the contract, 150 is the strike price and PE denotes it is an European Put option.C would denote Call and E would denote European and CE would denote it is an European Call Option. Currently, in India index and stock options are European in nature.
Which contracts under an underlying are enabled for Options trading? Why is the contract list restricted to specific contracts only under various underlyings?
ICICIdirect enables selected contracts under various underlyings for trading in the Options segment. Only those contracts, which meet the criteria on liquidity and volume are considered for Options trading. This is required as there may be a risk of lower liquidity in some contracts as compared to active contracts . As a result, your order may only be partially executed, or may be executed with relatively greater price difference or may not be executed at all. Thereby to safeguard your interest such illiquid contracts are disabled for trading on www.icicidirect.com. The list of contracts is subject to modification by ICICIdirect from time to time.
Can I modify my square off order placed in disabled contracts or Banned underlyings?
Yes. You may visit the online order book to modify details of your pending square off order under a disabled contract or banned underlying. Please note you will be able to modify the quantity downwards and upwards only upto the net open position considering the square off orders already placed for such position. Example1) You have a position of 16000 quantity in IFCI which is under banned period and you have two pending square off orders of 8000 each. In this case you will be able to modify all the eligible details for the square off order placed provided quantity for the modified square off order does not exceed 16000 including already placed square off orders against this position. This would mean that quantity cannot be modified upward for either of the pending square off order until the other pending square off order is cancelled.2) You have a position of 16000 quantity in IFCI which is under banned period and you have one pending square off order of 8000 quantity. You can modify all eligible details of this pending square off order and the quantity can be modified upwards only upto 16000 i.e. to the extent of net position quantity.
Where can I view Options contracts?
Only enabled contracts will be displayed for trading on the site when you select contracts either through the 'Place order' link or the Stock list page on www.icicidirect.com.
Would Different Margin percentage be applicable to Different underlying Stocks?
Yes, ICICIdirect.com would levy different margin percentages depending on the Stock and market volatility on different stocks as it feels is necessary for Risk mitigation.Thus all ACC stock options would be marginable say at 30%, whereas all BHEL options would be marginable say at 25%.Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
Can margin be changed during the life of contract?
Yes, margin % can be changed during the life of the contract depending on the volatility in the market. It may so happen that you have taken your position and 25% margin is taken for the same. But later on due to the increased volatility in the prices, the margin % is increased to 30%. In that scenario, you will have to allocate additional funds to continue with open position. Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
How is margin (premium) calculated on Buy orders in Option?
Buy orders irrespective of whether it is a Call or a Put, is margined only to the extent of the Premium payable on the order.For e.g. If you place a Buy order in OPT-ACC-30-May-2002-150-PE for 1500 quantity at a Limit price of 20 would attract margin of Quantity * Price at Rs 30,000/-.
How is margin (premium) calculated on Buy Market orders in Option Contracts?
Buy orders irrespective of whether it is a Call or a Put, is margined only to the extent of the Premium payable on the order. In case of market order, I-Sec system blocks margin on the basis of Best five BID and ASK order prices available in the exchange. However the BID and ASK prices are subject to change anytime and hence there can be difference in the price prevailing in the exchange at the time of order placement and the price at which order gets executed. For e.g. If you place a Buy Market order in OPT-ACC-30-May-2002-150-PE for 1500 quantity and likely execution rate based on ASK prices available in market at that point of time is Rs 20, then margin will be blocked at order placement would be Rs 30000 (1500 * Rs. 20). However, since ASK and BID prices are subject to change anytime, hence the execution of the order may happen at different price (say Rs. 22). Post execution, system would re-block differential margin based on actual execution price. If the differential margin based on actual execution price is not available in the limit allocation, then limit will become negative to that extent. In above example margin would be Rs 33,000 (1500*Rs 22). If sufficient free limit is not available in limit allocation then F&O limit will be negative to the tune of Rs. 3000.
What is the Basis of MTM in case of Sell Put and what happens in the MTM process?
As soon as you place a Sell Put order, which results in a position, a Trigger price is calculated (as per the formula given below) which is displayed in the Open positions book. Whenever the Underlying price of the shares goes below the Trigger price in case of Sell Put, the Contract would be in the MTM loop. First the Additional margin recalculated as per the new scenario due to price fall is blocked; if Additional margin is found to be insufficient then the orders in the same contract are cancelled. If both these measures fail, then the position is squared off by the ICICIdirect.com.Trigger Price for Sell Put position = (Strike Price - Margin Amount) - (1 - Minimum Margin %) For Example:You have a sell position in OPT-ACC-30-May-2002-150-PECurrent Market price of ACC is 160.Initial margin on ACC is 30%.Minimum Margin on ACC is 10%.Initial Margin = (160*30% - (160-150)) = Rs 38Minimum Margin on ACC is 10%.Trigger Price for Sell Put Position = (150 - 38) / (1- 10%) = 124.44Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
If limits are found to be insufficient is the whole position sent for square off in both cases of sell call and sell put?
No, Square off is done in both cases in lot size of the contract. On acceptance of the square off placed, the new trigger price is calculated and whole process as explained above for sell call and sell put is repeated. This goes on till either sufficient margin is available or the complete position is squared off whichever is earlier.
What happens if I do not square off the transaction till the last day?
All "Out of the Money" positions which are not exercised or assigned will be marked as closed off and the position will not appear in the open positions page. The closed off entry will appear on the Portfolio Details page as Close out .
How is brokerage calculated in case of options?
Brokerage in options is calculated on per lot/contract basis. Please refer Fee schedule on Customer Service page for more details
Is there a Daily EOD MTM just like Futures?
No, there is no daily EOD MTM in case of options like in case of futures.
Is MTM done in case of options?
Yes, but it is applicable only in case of Short Positions i.e. Sell Call and Sell Put.
What kind of settlement obligation will I have in Options?
1. Brokerage: Any Transaction you enter into will attract brokerage. Brokerage is debited to your account at the end of the day.2. Premium payable or Receivable3. Profit on Exercise4. Loss on assignment
When will the obligation amount be debited or credited in my Bank Account?
Assuming you place a transaction on day T, Options obligation will be settled as per the following tableCondition- Obligation settlementOption Premium Receivable T+1Option Premium Payable TExercise Profit in case of Stock / Index T+1Assignment Loss in case of Stock / Index TBrokerage T
What happens if I have a margin / premium obligation towards the Exchange and have open position under Options Buy Call and/or Put?
In case client does not have sufficient free limit available in such cases system may even square off Options Buy positions to recover the required margin / premium obligation amount towards Exchange.
Where can I see my settlement obligation?
You can see your obligation on cash projection page. The date on which the amount is to be deducted or deposited in your account can be checked from the "Cash projection" page. You can even see the historical obligation (already settled) by giving the respective transaction date.
Can an underlying be disabled from trading during the day?
Yes, In case the market wide open position for an underlying reaches a particular percentage specified by NSE, the trading in that particular underlying is disabled by NSE. Accordingly ISEC would also disable the trading in that particular underlying during market hours.
Can I square off the open positions in the disabled underlying?
Yes, you can square off the open positions in the disabled underlying through square off link available on open position page.
What is meant by a freeze order? What should I do in case an order is Freezed?
Orders in Options may get freezed at the exchange end. There is only quantity freeze (no price freeze) in case of options. In case of Stock Options single order value should not be beyond Rs. 5 Crores and the quantity for each stock is specified by exchange from time to time. In case of Index Options the quantity should not be beyond 15000. For further details on the respective quantities for each stock please refer NSE sitehttp://nseindia.com/content/fo/qtyfreeze.xls
Is there any hedging benefit between options?
No. Currently ICICIdirect is not offering any hedging/spread benefit within Options. Thereby customers are advised to monitor all the options positions as independent positions and allocate margin for all individual open Option positions (if additional margin is required).
Why I am unable to place market order's in options contract?
The contract might be disabled for market order's as it failed to meet internal liquidity criteria as decided by considering exchange circular on Pre-trade risk controls for Options segment. However, you can place limit order.
Will I be able to place square off order's for my position in illiquid contracts?
Yes, you will be able to place limit square off order's for your position in illiquid contracts, but not at Market. Market orders will be allowed once internal liquidity criteria is satisfied. However, system orders will continue to get placed at market price as per existing practice.
What are the criteria for defining illiquid contracts? How will I come to know whether a contract is illiquid?
The criteria are defined internally by ICICI Securities Risk Management Team on the basis of liquidity in a contract. If you place a market order in illiquid contracts, you will get a business message as "This contract is disabled for Market orders, request you to place limit order."For example,If the minimum criteria for Nifty Options is set as - 10 lots(Volume) traded for the day (Previous day's volume is considered while market opening).Nifty has below contracts active:Nifty-25-NOV-21-18000-CE with Volume - 12 lots tradedNifty-25-NOV-21-18000-PE with Volume - 8 lots tradedThen market order will be enabled for Nifty-25NOV21-18000-CE however market order will be disabled for Nifty-25NOV21-18000-PE.Above example is for understanding purpose and does not represent actual criteria set by ICICI Securities.
Will I be able to place market orders in a contract once it becomes liquid?
Yes, you will be able to place market orders in a contract once it meets the internal liquidity criteria.
I-Sec system has internal process to handle negative limit of clients. In any case if client limit has gone negative in F&O segment, then system will first cancel the pending fresh orders if any and will appropriate the margin released from that cancellation towards the negative limit, if limit still remain negative, then, system will proportionately withdraw margin from other marginable open position in F&O segment, if any, and that F&O position may get square off in system MTM process. Margin release in this process will get appropriate towards negative limit. If limit still remains negative, then system will square off required quantity of Option Buy position, if any, as recovery towards negative limit. Such process will be triggered at periodic time interval during market hours.
How is Margin calculated on Sell orders in option?
Since the seller of the option is exposed to a higher risk than the buyer of an option, the margin calculation is slightly different as compared to Buy orders. ICICI direct would specify a Margin percentage as it feels is commensurate with the volatility and the current position of the Stock or the Index. This percentage would be applied to the Current Market Price (CMP) of the shares/Index in the Underlying Market.
Would In-the-Money or Out-of-Money be considered for Margin calculation in case of Sell Orders?
Yes, In-the-Money or Out-of-Money would be considered while calculating the Margin on Sell orders. In case of In the Money, the seller of the option would be required to bring in additional amount equal to the difference between CMP and the Strike price in case of Call and difference between Strike price and the CMP in case of Put. In case of Out of money, the seller of the Option is given the benefit and would be required to bring in lesser amount equal to difference between Strike price and the CMP in case of Call and difference between CMP and the Strike price in case of Put. The Margin so arrived is compared with a Minimum Margin (SOMC margin) i.e the Short option margin Percentage, the higher of the two percentages is taken into account.
Would the Premium to be received be considered for Marginable sell orders?
No, Premium benefit will not be given at the time of placing Marginable sell orders.Once the order is executed the benefit of the Premium is withdrawn since the Premium is now a crystallized entry for which you would get the Payout on the Indicated payout date. Now the entire margin amount is blocked from the limits. The following Illustration shows how margin is calculated on sell orders (Applicable to both Call and Put orders)You place a sell order in OPT-ACC-30-May-2002-150-CE, for 3000 quantity at a limit price of 20/-Current Market price of ACC is 140.Initial margin on ACC is 30%.The Buyer Out of the Money in this case and the seller gets benefit of this.(a) Margin3000 * (140*30% - (150-140)) = Rs 96000Margin on Order would be =Rs 96000Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
Is the separate Margin Blocked for Buy and sell Orders?
No, margin is blocked on the order, which attracts higher Margin out of the Buy or Sell order.If you have placed both a buy and sell order in the same contract Margin blocked would be the maximum of the two orders.IllustrationAs in the above illustration the sell order attracts a margin of(a) Rs 96000/-.If you place a Buy order in the same Contract OPT-ACC-30-May-2002-150-CE 3000 at Rs 20/- it would attract margin of(b) Rs 60,000/-.Margin blocked would be the higher of the two margins (a) or (b) i.e. Rs 96,000/-.Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
Is margin blocked on all Options Orders?
No. Margin is blocked only on orders, which result in an Increased Risk exposure. Margin is not recovered from an order, which is cover in nature. However in case of buy cover order where the premium exceeds the margin blocked, extra margin is required for placing the order. If a Position of opposite nature is present then the Order is reduced by the opposite position, if the opposite position is greater than the order, then the order is not margined at all. For e.g.a) if you have a Buy position of 4500 in OPT-STABAN-25-Jul-2002-210-CE, and you place a sell order of 3000 then the sell order becomes non-marginable.b) If you have a sell position in OPT-NIFTY-27-May-2004-1700-CE, and the margin blocked is Rs.45,500.00 and a cover buy order is placed which requires total premium of Rs.65000.00, then extra margin to the extent of Rs. 14500.00 (65000-45500) is required.Please note - Exchange has identified option contracts in either Deep Out of The Money (OTM) or Non Deep OTM for which Exchange has stipulated separate Exposure percentage (also known as Extreme loss margin percentage). Hence accordingly for Deep OTM or Non Deep OTM option contracts Initial Margin percentage and Minimum Margin percentage would be revised accordingly.
What happens if buy or sell orders are placed when there is some open position also in the same contract?
In both cases buy and Sell, the Marginable Buy order or Marginable Sell order is arrived at the Contract level. Marginable Buy order is calculated by deducting Net Sell Position from the Total Buy ordersMarginable Sell order is calculated by Deducting Net Buy Position from the Total Sell ordersMargin is recovered only on the Marginable Buy/Sell order Quantity.
How do I place a square off order to cover my open positions?
You can place the square off order either through the normal buy/sell page or through a hyper link "Square off" on the "Open Position" page. It is advisable to place cover order from open positions page through the square off link since the quantity available is auto-populated and you are aware of the quantity for which you are placing the square off.
How does the profit and loss recognized on execution of square up (cover) orders?
In case of Options the cover order Buy or sell though Reduces the Open position or closes out Open position accordingly, the both the orders are treated separately.
Can I Exercise My Buy (Call/Put) Option?
No you cannot exercise your Buy options since currently in India all Index and Stock options are European in nature.In case of European Options the contracts can be exercised only on the last day of the contract expiry. All In the Money European contracts will be automatically exercised by the exchange on the last day of contract expiry, hence there will be no additional option for exercising onwww.icicidirect.com.In case of an American option you can place an exercise request upto the Open (Call/Put) buy position anytime except on the Last date of the contract expiry.
Is there a specific time when I can place my exercise request?
Currently, in India all Index and Stock options are European in nature thereby you don't have the option to place exercise but they will be auto exercised on the expiry date if they are In-the-Money.
What is the Effect of Exercise?
The profit on exercise is reflected in the Cash Projections and is added to the Limits. The realized profit on the contract is also reflected in the Portfolio page.
How is Profit calculated on Exercise?
In case of Exercise the profit is calculated as the difference between the Exercise Settlement price of the Underlying shares in the cash market and the Strike price of the contract. This is then multiplied by the exercised quantity and reduced by the applicable brokerage charges, statutory levies and taxes.
Is exercise quantity considered for Margin calculation?
Yes, the exercised quantity is reduced from the open positions in the Marginable sell order quantity calculation. Hence the sell order placement would be marginable if the quantity of sell order exceeds the difference between the executed Buy position and the exercise request quantity i.e. Sell order Qty is greater than (Buy Position Qty - Exercised Qty).
Is part exercise possible by the exchange?
No, only full quantity will be exercised by exchange.
What is assignment?
In case you have a Sell position, you may be assigned the contract i.e. you will have to Buy the Underlying in case of Put and sell the Underlying in case of Call. However since options are currently cash settled you would have to pay or receive the Money.
How do I know I have been assigned?
The Assignment book will reflect the assigned quantity in the contract; the Limits page will also accordingly reflect the Payin dates on which the assignment obligation is payable.
Do I have any control over Assignment?
No, You have no control over Assignment since it is initiated by the exchange.The Assignment process is completely decided by the exchange.
