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Why are there restrictions on placing Bank Nifty and Nifty option orders for certain strike prices?

All strikes of Nifty and Banknifty options are allowed in intraday (MIS) trades. However, for overnight (NRML) trades, certain strikes are restricted from trading due to SEBI regulations that prescribe market-wide Open Interest (OI) limits.

SEBI regulations mandate an upper limit on the OI of each F&O contract at every broker, set at 500 crores or 15% (whichever is higher) of the total OI for that specific contract across the market. As Zerodha has a considerable number of active users trading index options, there are restrictions on buying OTM (Out of the Money) options for specific strikes to maintain OI limits within the allowed ranges.

Coincidentally, we have observed that the restriction on buying naked OTM options, which are the riskiest contracts, reduces the overall risk for traders.

What is allowed?

  • Option buying and selling in all strikes in intraday (MIS) trades.
  • Option selling or writing in all strikes with no restrictions.
  • Long positions are allowed of any range till their count is equal to the short futures or options position one holds.

How to trade restricted strikes?

The trading of restricted strikes is made possible through a custodian system. Zerodha has collaborated with Orbis Financial, a SEBI-registered custodian, to provide this service. To learn more, see How to open an Orbis custodial account to trade restricted Nifty and Bank Nifty option strike prices?

How to know if a strike is restricted?

Upon opening the order window for an option, if there are any restrictions in place, the nudge feature will display the permitted strikes. To learn more, see What is Nudge?