Risk Update: For Expiry Day, Physical Delivery Margin in F&O (Stock Options) Segment

[kuldeep]

Hi Everyone,

Keeping everyone updated on the changes we are making for the Risk Management processes for trading on Stock Options as we see a rise in trading volumes on Dhan for these contracts lately.

On the day of expiry, note that it is not allowed to initiate new positions (Intraday and CarryForward) in Stock Options that are set to expire in the current month. Additionally, a margin for potential physical delivery will be reserved for all positions that are carried forward for Stock Options.

For all long positions (Carry Forward) in stock options (whether they are In-the-Money, At-The-Money, or Out-of-the-Money), additional delivery margin will be set aside and blocked for any open positions on the expiry day. This margin will be determined based on either the Exchange’s defined Value at Risk (VaR) and Extreme Loss Margin (ELM) percentage of the underlying stock, or 20% of the stock’s value, whichever of these two values is greater.

Please note that this adjustment is implemented to mitigate the risk associated with the possibility of In-The-Money contracts resulting in physical delivery. This risk could potentially expose you as Option Traders on Dhan to unintended delivery outcomes, or cases where you missed squaring off the positions. However, it’s important to note that this adjustment will decrease the amount of your available trading limits. Failing to maintain the required margins could lead to our Risk Management System (RMS) initiating square-off procedures.

To illustrate this for better understanding, let us consider the following scenario:

Suppose you purchased the Reliance 2600 CE option (when spot price of Reliance is 2400) by paying a premium of Rs. 50. If you decide to maintain this position until the contract’s expiration date, an additional delivery margin will be imposed on the expiry day to account for the physical delivery risk. For instance, if the contract value is calculated as Rs. 2600 multiplied by 250 (the Lot Size of Reliance), resulting in Rs. 6,50,000, the additional delivery margin will be Rs. 1,30,000, which is 20% of Rs. 6,50,000.

Particulars	Existing Process	Revised Process	Impact
Fresh Positions in Current Month Contracts	Not Allowed	Not Allowed	No Change
Physical Delivery Margin	Only In the money Contract (ITM)	All Contracts (ITM, ATM, OTM)	Increase in Margins

In such cases, we request you to keep a track of your positions in Stock Options, specially on expiry days for these positions and also for the purpose that you may have planned for other trades but margins are blocked for open positions in stock options.

This same has also been updated in our RMS policy, which you can refer here: RMS Policy

Thank you

Kuldeep Mathur

Risk team

[Varsha777]

honestly… what a bad move it is ! No matter how manytimes u justify to us about risk to the users ! we all know the risk associated with physical delivery… what makes it worst that u guys implemented them for OTMs also & that too can’t wait till 12.30 or 1.30PM & in addition to this… you guys don’t give Margin benefit for intraday products from expiry -4 days (that is expiry -4 (friday) , -3 (Monday) , -2 (Tuesday), -1 (wednesday) !

in short , u want “laddu (sweets)” in all your hands , No matter what impact it can create to customers limited Margin ! Some Brokers in this industry trying to be very very very very safe & selfish !

i know u gonna justify your moves anyhow but honestly, intraday product benefit blocked was also not justifiable at all to your beloved traders community… & also now this, even OTMs are also included for such a huge Margin block… just wow… what a pathetic & bad Move DHAN , atleast u guys should have given timeline of 2PM or 2.30 PM for OTMs, after that time OTMs attract Margin block till that time one can square off their old positions (Fresh position on that day is already not allowed so that’s not a problem)

i would really suggest Traders who do stock options… DHAN won’t be a right place for stock options specially in last 2 weeks of the expiry otherwise it’s fine & awesome!!!

[PravinJ]

Hi @Varsha777 We have already shared comparison of all platforms v/s Dhan post your request. @Naman’s detailed note is here:

RMS policy need to be practical for stock Options - Last week (Monday to wed) for "intraday product" which takes huge Margins, other brokers don't do such things so plz change this!

Hi @Varsha777 We completely understand your point. At Dhan, policies are made with the objective to provide comprehensive trading opportunity to our users. At the same time we try to balance for the Risk Profile of users & comply with all the necessary regulations. Keeping same in mind we have created our current Risk Management Policy. The point in discussion here is about Margin Requirement for Stock Options in Intraday product type in last week of Expiry. This is what the Dhan RMS policy …

Other brokers referred by you, also do not allow fresh positions on Expiry - 1 and on Expiry day. Risk and such measures are done for bad times. Not all clients may trade as perfectly as you would, however if there are margin obligations for any of the clients, that amount has to be paid by the broker. On an ongoing basis, there are huge penalties on brokers for not just missing margin obligations, even reporting this. Anything wrong in risk management has potential to wipe out the broking platform.

The implications of that are huge for us and that aside, and also the said is policy is pretty much an industry standard is what we understood after we reviewed this post your request. Many platforms would even cut positions on Expiry - 2 and Expiry - 1 days as well. Hope this clarifies.

[t7support]

Just some side info for your consideration. Index fno is cash settled. Index cannot be manipulated like stocks and there is no delivery risk and consequent margin issues. Infact majority of the fno volume in exchange comes from index options.

[PravinJ]

Yes @t7support that is the biggest risk, unable to square off positions for lack of liquidity. If those improve, most of these measures will go.

[t7support]

In trading / business I always think what is my worst case risk ? Is it bearable ? If yes, let’s take that risk if there is good enough probable reward too. If no, let’s not take it.

@PravinJ

Anything wrong in risk management has potential to wipe out the broking platform.

So I perfectly understand this.

@PravinJ

unable to square off positions for lack of liquidity.

In sync with this too.

[Varsha777]

so u guys want to say that… expiry - 4, -3 ,-2 & -1 day ,
all these days there could be liquidity issues nd broker won’t be unable to square off till expiry ??? Are u kidding me ?

On the expiry day itself u don’t allow fresh positions that is totally fine & understandable.
on the expiry -1 day if u don’t allow fresh carry forward positions that is also understandable.
But
what i didn’t like , u guys didn’t allow intraday products’ benefit (that is full premium paid /Normal Margin) for even expiry day -4 , -3, -2 ,-1 days and that’s where dissatisfaction felt !!! other rules can be manageable by us but intraday products unnecessary huge Margin block rule is really not satisfactory & not practical either (particularly when there are lots of time before expiry)