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Deep Out-of The Money (OTM) contracts


This has reference to Exchange circular NSE/SURV/42382 dated October 11, 2019 on Surveillance measures for Deep Out-of The Money (OTM) contracts.

FAQs:

Deep OTM are those strikes traded by any entity/client in which; 

  1. Fresh short positions are created and  

  1. At the time of such trade, the strike price is 30% away from the underlying price 

Illustration 1:  

Strike Price 

Option   Type 

Order Time 

Underlying Price at the time of order 

Trade Time 

Underlying Price at the time of Trade 

Strike price away from underlying 

Remarks 

135 

CE 

10:00:00 

115 

10:10:00 

100 

35% 

Strike to be considered for levy of additional margin 

60 

PE 

10:30:00 

90 

10:50:00 

100 

40% 

Strike to be considered for levy of additional margin 

 

Strike Price 

Option   Type 

Order Time 

Underlying Price at the time of order 

Trade Time 

Underlying Price at the time of Trade 

Strike price away from underlying  

Remarks 

135 

CE 

10:00:00 

100 

10:10:00 

115 

Below 30% 

Strike shall not be considered 

65 

PE 

10:30:00 

100 

10:50:00 

90 

Below 30% 

Strike shall not be considered 

 

Only those entities/clients which trades and creates fresh short positions in a strike which is 30% away from the Underlying Price at the time of trade shall be shortlisted.

Clients shall be identified as follows: 

  1. Top clients subject to a maximum of top 10 clients which constitutes 30% of the total fresh short positions in the contract.
  2. No clients to be considered if top 10 clients do not account for 30% of the fresh short position in the contract. 

The additional margin shall be levied on such identified clients at the rate of 20% on notional value of the fresh short positions created.  

Notional Value = Close Price of the Underlying * Fresh Short Quantity 

Illustration 1: Scrip: ABC Limited; Option Type: CE.  

Strikes: All strikes which during the day were 30% away from the underlying at the time of trade 

Client 

Fresh Short Open Interest 

Percentage to OI 

Remarks 

95 

                   10.02  

Shortlisted for additional margin 

85 

                     8.97  

Shortlisted for additional margin 

78 

                     8.23  

Shortlisted for additional margin 

76 

                      8.02  

Shortlisted for additional margin 

72 

                      7.59  

 

69 

                      7.28  

 

65 

                      6.86  

 

62 

                        6.54  

 

61 

                        6.43  

 

59 

                        6.22  

 

58 

                        6.12  

 

57 

                        6.01  

 

56 

                        5.91  

 

55 

                        5.80  

 

Total 

948 

  

 


Illustration 2: Scrip: ABC Limited; Option Type: PE 

Strikes: All strikes which during the day were 30% away from the underlying at the time of trade 

Client 

Fresh Short Open Interest 

Percentage to OI 

Remarks 

100 

                       7.30  

Shortlisted for additional margin 

100 

                       7.30  

Shortlisted for additional margin 

99 

                       7.23  

Shortlisted for additional margin 

99 

                       7.23  

Shortlisted for additional margin 

98 

                       7.15  

Shortlisted for additional margin 

98 

                       7.15  

Shortlisted for additional margin 

97 

                       7.08  

 

97 

                       7.08  

 

97 

                       7.08  

 

97 

                       7.08  

 

97 

                        7.08  

 

97 

                        7.08  

 

97 

                        7.08  

 

97 

                        7.08  

 

Total 

1370 

  

 


Additional margin of 20% on the notional value shall be levied and blocked from the collateral deposits of clearing member of the highlighted clients.

The margins levied on clients identified as per (3) above shall be grossed up at the trading member level. The margins grossed up at the trading member level shall be aggregated at the clearing member level and blocked from the collateral deposits of such clearing member.

The following file shall be sent to the Trading Member(s) through extranet on an end of day basis: 

TM Code_Addln_Margin_DDMMYYYY.csv containing client wise / scrip wise details of strike which are shortlisted for additional margin as per (3) above. 

The above file shall be available for download at the following location: 

Faoftp/Investigation/Dnld

The following file shall be sent to the Clearing Member(s) through extranet on an end of day basis:  

F_Primary Member Code_ASMOTM_DDMMYYYY.csv containing trading member wise / client wise / scrip wise details of strike which are shortlisted for additional margin as per (3) above.

The above file shall be available for download at the following location:  

Faoftp/Letters/Dnld  

The Collateral Break up report (CL01) shall also include information on the additional margin blocked from their collateral deposits.

The additional margin shall be retained with Clearing Corporation till expiry of contract or till square-up of positions, whichever is earlier.

In case of any further queries, you may write to us at surveillance@nse.co.in or call on +91-22-26598417/ 8418/ 8129/ 8166

Updated on: 18/11/2020
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