Why Can’t I Always Reuse the Option Premium Received?
When you sell an options contract, the premium is usually credited the same day. However, it is not always freely reusable across segments or trade types. Exchange rules and settlement norms can temporarily block or restrict the use of this premium, especially for far in the money or far out of the money short options that are carried overnight.
Why the premium is sometimes blocked?
- Exchange premium blocking for risk control: The clearing corporation may collect the net option value in cash when the strike is significantly away from the underlying close. In such cases, the premium is held as cash collateral and is not available for other trades until the position is closed or expires.
- Carryforward vs intraday: Blocking applies to overnight short positions. Pure intraday shorts are typically not affected by this premium hold.
- Ledger entry: You may see a narration such as Collection of Option Value for ITM or OTM options in Cash reflecting this hold.
Distance thresholds that can trigger a hold
- 40% or more from the underlying close: applies to all option contracts.
- 30% or more: applies to index contracts with expiries 9 months to 2 years.
- 20% or more: applies to index contracts with expiries up to 9 months.
When you can use the credited premium?
- Same day, same exchange, to buy options: The credited premium can typically fund option buys on the same exchange on the same day, provided it is not blocked under distance rules.
When you cannot use the credited premium?
- Not for equity segment orders: Cannot be used to buy or sell stocks in the cash market.
- Not for new short options or new futures: The premium is not treated as free margin for margin-heavy positions until fully settled and not blocked.
- Not across exchanges: Premium credited on NSE F&O cannot be used simultaneously on other exchanges.
How blocked premium is released?
- Square off the short option to release a proportionate amount.
- Hold to expiry to release any remaining blocked premium.
- Partial exits release funds in proportion to the reduced position size.
Example
If NIFTY is 23,600 and you short a very far strike, for example a call above 33,040 or a put below 14,160 which is roughly 40% away, the premium received can be held in cash and will not be available for new trades until you square off or the contract expires.
To avoid rejections
- Place the hedge leg first if you are building a spread, or use Basket Orders so the platform calculates combined margins and shows the real fund impact before you place the order.
Plan for premium holds on far ITM or far OTM overnight shorts and rely on available cash or basket execution with hedges if you need immediate reusable funds.
What if...
| Scenario | Outcome |
|---|
| I sell a short option that is 20% to 40% away from the underlying | Premium may be blocked as cash based on contract tenor and whether it is an index option. |
| I square off the short option | Blocked premium is released in proportion to the exited quantity. |
| I try to use the premium to sell another option or trade futures | Order can be rejected due to margin restrictions or unsettled funds. |
| I buy another option on the same day and same exchange | Allowed, provided the premium is not blocked under the distance rules. |
| I switch to a different exchange | Credited premium cannot be used across exchanges. |
Last updated: 04 Nov 2025
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