After the 12% decline on Thursday, NSE has banned Futures and Options Trading in RELCAPITAL.

Ban is generally imposed for preventing excessive speculation in the stock.

Here we have another problem which is more troublesome. This stock is in the list of compulsory physical settlement. There is nothing wrong with the concept of physical settlement. The problem is in the manner in which it is being implemented by the brokers.

They are not permitting to carry these trades into the expiry week by way of precaution. Or else they are asking for margin equal to the value of the trade.

I would say that the brokers are failing in their responsibility as a broker if they are doing the above things.

Let us say I am a PUT buyer.

I bought an OTM PUT and it becomes in the money on Thursday. Market is closed on Friday and Monday happens to be the first day of the expiry week.

As a PUT BUYER, I have the right to sell at the strike price but not the obligation.

By asking for the margin money, broker is converting into obligation to sell. This is wrong and a regressive step. Ultimately this will lead to loss of volume which will hurt the same brokers.

In the absence of margin, brokers tell us that they will square off the trade.

My question is — Why ?

I have a right to sell and not the obligation to sell.

If the price of stock continues to fall and PUT price goes up, I may decide to buy the stock at market price and give it for physical delivery. I will do this EXERCISE of option on expiry day. Why should the broker compel me to close my trade earlier.

If in the worst case scenario, I am not able to close out my in the money option and am not able to exercise it, well so be it. I do not get any profit and even lose the premium paid.

That is my right by definition of options. I wonder why the brokers are doing it the wrong way.

Even in year 2008-09 when the markets were very volatile and we used to trade American Options, such regressive practices were not followed.

This is what I meant by the brokers not doing their job rightly.

It will take some time to come to a proper solution to this problem. Till then the trades have to bear this as one more factor to their disadvantage.

F&O ban :

This is the real deal killer.

Now we can not buy a lower strike to stay with the trend.

We can not buy CALL 150 to protect our profit and stay with the trend or trend reversal.

Even getting an exit at appropriate price is tough as the volume dries up. Only the trades who are stuck in the trades can square off the trades. There will be big difference in the Bid and Ask Prices.

Stay patient and put an appropriate sell price.

A good trade has been actually messed up by the regulator.

We could live with that but the broker’s insistence on squaring off the trades makes it worse. And to put it mildly, insistence on the part of brokers to close the trade should be termed Unfair Practice.

They may have their reasons for doing so, but it is against the principles of free and fair trading.

To Summarize :

Be watchful on Monday and try to move out of the trade with a reasonably good price.

Those who have already moved to PUT 150 and PUT 140 , good luck to them.

Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.