Why am I not able to place Bank Nifty, Nifty option orders for certain strike prices?
All strikes of Nifty and Banknifty options are allowed in intraday (MIS) trades. For overnight (NRML) trades, certain strikes are blocked from trading because of the market-wide Open Interest (OI) limits prescribed by SEBI regulations.
The exchanges set an upper limit to the OI of every F&O contract at every broker at 500 crores or 15% whichever is higher of the total OI for that particular contract across the market. As Zerodha has a substantial number of users actively trading index options, to maintain the OI limits within the allowed ranges, the buying of OTM (Out of the money) options for certain strikes are restricted.
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.
- Option buying in all strikes as long as it is a part of a hedge strategy with an existing short option position.
How do I trade the restricted strikes?
Trading restricted strikes is possible via a custodian system. Zerodha has partnered with Orbis Financial, a SEBI-registered custodian to offer this. See How do I open an Orbis custodial account to trade restricted Nifty and Bank Nifty strikes?
How do I know if a strike is restricted?
When you open the order window for an option, if there is a restriction, a Nudge popup displays the allowed strikes.