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