Why Can't I Use the Options Premium for Trading? Explained

Why can't I use the options premium received from selling the options contract?

As per the exchange regulations, there are new rules regarding the availability of options premium received from selling in-the-money (ITM) and out-of-the-money (OTM) options. Here’s what you need to know:

Collection of Net Option Value for In/Out of the Money Options in Cash

Threshold (Strike Price Away from Closing Value)
Applicable Contracts
40% or more
All contracts (stocks and index)
30% or more
Index contracts (expiry 9 months to 2 years)
20% or more
Index contracts (expiry up to 9 months)

Key Points to Remember

  • The options premium will be held as cash collateral by the Clearing Corporation until the contract is settled, which means you cannot use this premium for other trades until:

    • The option contract expires.
    • The short positions are squared off (in case of partial square-off, a proportionate amount of the premium will be released).
  1. Any overnight (carryforward) short positions in options contracts that meet the above criteria will have their premium collected in cash. A debit entry will be passed in the ledger with the narration "Collection of Option Value for ITM/OTM options in Cash" until settlement.
For example, if the Nifty50 Index is at 23600 and you sell a call option with a strike price 40% higher (33040) or a put option with a strike price 40% lower (14160), the premium received from this sale will not be available for trading as these come under the thresholds set by the exchange.

Note: If the options sold do not fall within these mentioned categories, then the premium is available for trading.

For more details, you can refer to this circular.

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