Hi @nithin sir,
In this article, it is written that the positions can be squared off if MTM exceeds 50% of the funds. So what did happen yesterday in currency derivative market when there was kind of a black swan even?
If I had bought 72.5 PE option and sold 72.75 PE option, my maximum possible loss is fixed as it is hedged position. But yesterday, only 72.75 PE spiked to 21 while 72.5 PE went only till ~0.8. In this case, The 50% MTM loss of the total funds could have been seen although the maximum loss is capped way lower. So what did happen to people with this kind of positions? Were they auto squared off? If so, at what price(with respect to their maximum possible loss).
It is illogical to square of positions at 50% of the total funds if the maximum possible loss is capped at some percentage of deployed capital(not total funds). For example it could suffer loss even more than the deployed capital, say I have 1 Cr in my account and had taken position with 10 L and max loss is capped at 10%(1L), in this case I could lose freaking 50L!!! instead of 1L. Who is responsible for potential loss in this kind of scenario? Broker/Government/CDS?
This should be noted by Zerodha Risk management team to ensure that this kind of things does not happen. I understand if in worst case scenario, naked short positions are squared off but hedged positions should not incur loss more than the capped amount.
I don’t trade in currency market but curious to know this as this kind of thing could happen in stocks/index Options(less likely but still) which I trade.
Would appreciate a lot if I could get clarification.
Thanks!
These are freak trades, any person in sane mind would understand based on spot/future value. I remember zerodha mentioning they won’t do anything in these cases, they assess the situation and then act, So, in this case they would have not squared off any.
Yeah but freak trades are those which only spike for a few seconds, not few minutes. So, that’s little bit different. If you have traded in Sensex/Bankex, you could have seen those freak trade which spikes the option value just for seconds and come back.
Agree, but we can clearly see this happened on very few strikes, so that should be okay, believing their RMS is well equipped to distinguish between freak and normal trades.
@Bhuvan @Ragavendran_M Anything anyone??