How-to collateral margin options F&O pledge 50:50 cash rule Zerodha

Can you buy options using collateral margin on Zerodha?

From WebNotes, a public knowledge base. Last updated 1 July 2026. Reading time ~12 min. Level: Intermediate.

Key facts

Buying options with collateral	Allowed on Zerodha; it was previously not permitted
Charge on collateral used to buy options	0.05% per day (Rs 50 per lakh) or 18% a year, on the utilised collateral, not the full option value
Cash requirement	A positive cash balance is required
50:50 rule (overnight F&O)	At least 50% of the margin must be cash or cash-equivalent collateral
Shortfall charge (50:50 breach)	0.035% per day (12.775% a year) plus 18% GST on the shortfall
From 1 April 2026	If the cash shortfall exceeds Rs 5 lakh, F&O brokerage rises to Rs 40 per order (from Rs 20)

Procedure

Activate F&O and pledge holdings for collateral marginMake sure the Futures and Options (F&O) segment is active, then pledge approved holdings so collateral margin appears under Funds. Follow the Console request and CDSL authorisation covered in the pledge guides. The collateral credited is the pledged value minus the security’s haircut.
Keep a positive cash balance in the accountBuying options against collateral needs a positive cash balance. Add funds so the account is not in debit before you place the trade, because the collateral you use to fund the premium is treated by Zerodha as an overnight amount that carries a daily charge.
Open the option contract on KiteOn Kite, search for the option contract you want, for example a Nifty or Bank Nifty call or put, and open its order window. Confirm the lot size and the premium quoted before you proceed, since the premium decides how much of your margin the trade uses.
Place the buy orderEnter the quantity in lots and place the buy order. The premium can draw on your available margin, which includes the collateral from pledged holdings, provided a positive cash balance is present in the account.
Note the daily charge on the collateral usedThe collateral you use to fund the option premium is treated as an overnight funded amount and attracts a delayed-payment charge of 0.05 per cent per day, that is Rs 50 per lakh, or 18 per cent a year, on the utilised amount, not on the full option value. Using your own cash avoids this charge.
Watch the 50:50 cash requirement on other overnight positionsIf you also carry overnight futures or short-option positions, at least half of that margin must be cash or cash-equivalent collateral. Keep enough cash so a non-cash shortfall does not trigger a separate interest charge on those positions.
Check the charges in the contract note and on ConsoleAfter the trade, review the contract note and the Funds and charges statements on Console to see the delayed-payment charge and any shortfall interest applied, so the real cost of using collateral rather than cash is clear.

Buying options using collateral margin is allowed on Zerodha, but it is not the same as spending your own cash. When you pledge shares or other approved securities, the collateral margin you receive can fund an option-buy order, provided you keep a positive cash balance. The catch is the cost: the collateral you use to pay the premium is treated by Zerodha as an overnight funded amount and carries a daily charge. This guide walks through placing such a trade, the charge that applies, and the 50:50 cash rule that governs any overnight F&O position built on collateral.

This changed over time. Option buying with collateral was once disallowed, so a trader had to use cash for the premium. Zerodha now permits it, with the delayed-payment charge described below. If you are new to trading against pledged holdings, start with how pledging works on Zerodha and using collateral margin for F&O , which cover what the margin funds before you spend it on options.

Conflict-of-interest disclosure. This guide is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this guide does not carry it and earns no referral commission from the procedure described here.

Step-by-step procedure

The Procedure infobox above lists the seven steps in order. Each is expanded below, with the charges and the cash requirement that most traders miss on the first attempt.

1. Activate F&O and pledge holdings for collateral margin

Collateral margin only exists once you have pledged approved securities and the Futures and Options segment is active on your account. Pledge your holdings through Console and authorise the request on CDSL, as set out in how to pledge holdings for margin and how to authorise a pledge on CDSL . The collateral credited is the pledged value minus the security’s haircut , and it appears separately from cash under Funds. What you can pledge is set out in which securities can be pledged on Zerodha .

2. Keep a positive cash balance in the account

A positive cash balance is required to buy options against collateral. Add funds so the account is not in debit before you place the trade. This matters because the collateral you use to pay the premium is not spent like cash; Zerodha funds it as an overnight amount, and that amount accrues a daily charge until it is covered by cash. Going in with cash already present keeps that charge small or avoids it.

3. Open the option contract on Kite

On Kite , search for the option contract you want, for example a Nifty or Bank Nifty call or put at a chosen strike and expiry, and open its order window. Confirm the lot size and the premium quoted. The premium multiplied by the lot size is the amount the trade will draw from your available margin, so read it before you place the order.

4. Place the buy order

Enter the quantity in lots and place the buy order. The premium can draw on your available margin, which includes the collateral from pledged holdings, as long as a positive cash balance is present. If both cash and collateral are available, the order uses them together, and the portion funded from collateral is what carries the charge described next.

5. Note the daily charge on the collateral used

The collateral you use to fund the option premium is treated as an overnight funded amount. It attracts a delayed-payment charge of 0.05 per cent per day, that is Rs 50 per lakh, or 18 per cent a year, on the utilised collateral, not on the full option value. So if collateral funds Rs 1,00,000 of premium, the charge is about Rs 50 for each day the amount stays funded. Using your own cash for the premium avoids the charge entirely. This is a distinct charge from the shortfall interest on the 50:50 rule covered below; keep the two separate when you read your statement.

6. Watch the 50:50 cash requirement on other overnight positions

Buying an option is one use of collateral. If you also carry overnight futures or short-option positions, the 50:50 cash-collateral rule applies to those: at least half of the margin they need must be cash or cash-equivalent collateral, and the other half can come from pledged stocks. The difference between the two components is explained in cash component versus collateral component , and the same logic for fund collateral is covered in using mutual funds as F&O collateral . Keep enough cash so a non-cash shortfall does not trigger a separate interest charge on those positions.

7. Check the charges in the contract note and on Console

After the trade, review the contract note and the Funds and charges statements on Console. They show the delayed-payment charge on the funded collateral and any shortfall interest from the 50:50 rule. Reading them is the only way to see the real cost of using collateral rather than cash, since neither charge appears at the moment you place the order.

What collateral margin can and cannot fund

Collateral margin is added to your total Kite margin and shown separately under Funds. It can be used for equity intraday trading, trading futures, and writing or shorting options. It cannot be used to buy stocks or ETFs for delivery, and it does not count toward your withdrawable balance. Buying options sits between these: it is allowed, but only with a positive cash balance and the daily charge on the collateral used.

The reason writing options and trading futures feel different from buying options is the direction of the cash flow. When you write an option or buy a future, you post margin, and collateral can cover up to half of that margin for an overnight position under the 50:50 rule. When you buy an option, you pay a premium out, and if that premium is funded from collateral rather than cash, Zerodha is effectively lending you the amount overnight, which is why the delayed-payment charge applies.

The charge for buying options with collateral

The charge is 0.05 per cent per day on the utilised collateral, which works out to Rs 50 per lakh per day, or 18 per cent a year. It is applied to the collateral amount used to fund the premium, not to the notional value of the option. It runs for each day the funded amount stays uncovered by cash, so clearing the amount with cash the same day keeps the cost minimal.

This 0.05 per cent per day figure is the option-buying charge, and it is easy to confuse with two other numbers in the pledge system. Using non-cash collateral beyond the 50 per cent limit on overnight F&O attracts 0.035 per cent per day, a different rate for a different breach. And pledging stocks outside Zerodha’s interest-free approved list attracts its own 0.05 per cent per day interest on the collateral used. The rates overlap in size but apply to different situations, so read the statement line by line. The full fee picture, including the flat pledge charge of Rs 30 plus GST per ISIN, is in Zerodha pledge charges .

The 50:50 cash rule for overnight F&O

For overnight F&O positions, at least 50 per cent of the required margin must be cash or cash-equivalent collateral, and the other 50 per cent can be non-cash collateral such as pledged stocks. Zerodha’s own example puts it plainly: you need a minimum of Rs 50,000 in cash for a position that requires a margin of Rs 1 lakh. Cash-equivalent collateral, from liquid funds, overnight funds, Liquidbees and government securities, counts toward the cash half and can be used fully, which is why traders often pledge a liquid fund alongside their stocks.

If you use non-cash collateral beyond the 50 per cent limit, the shortfall attracts a delayed-payment charge of 0.035 per cent per day, that is 12.775 per cent a year, plus 18 per cent GST, on the shortfall amount. This is the cost of running an overnight position on too little cash. It is separate from the option-buying charge in the section above, and both can appear on the same account in the same day if you buy options and carry short positions together.

Keeping enough cash: the shortfall charge and the 2026 change

The practical rule is simple: hold enough cash or cash-equivalent collateral to cover at least half of every overnight F&O margin, and hold a positive cash balance whenever you buy options against collateral. Fall short and the daily charges accrue quietly until you top up.

One change takes effect from 1 April 2026. If the cash shortfall exceeds Rs 5 lakh, Zerodha applies a higher brokerage of Rs 40 per F&O order, up from Rs 20, instead of the delayed-payment charge on that shortfall. So a large cash shortfall no longer draws only the 0.035 per cent per day interest; above the Rs 5 lakh threshold it doubles the per-order brokerage instead. For active traders that can be the larger cost, so sizing positions against available cash matters more from that date.

What can go wrong

You buy options with collateral while the account is in debit. A positive cash balance is required. Add cash first, or the funded amount keeps accruing the 0.05 per cent per day charge.
You confuse the charges. Option buying on collateral is 0.05 per cent per day; a 50:50 cash shortfall is 0.035 per cent per day; extra non-approved stock pledging is 0.05 per cent per day. They apply to different situations. Read the statement line by line.
You run an overnight position on too little cash. Non-cash collateral beyond half the margin creates a shortfall that attracts 0.035 per cent per day plus 18 per cent GST. Keep at least half the margin in cash or cash-equivalent collateral.
You expect collateral to buy shares. Collateral cannot fund delivery buys of stocks or ETFs; it is for intraday, futures and option writing, with option buying as the charged exception.
A large shortfall from 1 April 2026. Above a Rs 5 lakh cash shortfall, F&O brokerage rises to Rs 40 per order instead of the shortfall interest. Size positions against available cash.

Frequently asked questions

Can I buy options using collateral margin on Zerodha?

Yes. Zerodha allows buying options with collateral from pledged holdings, provided you keep a positive cash balance. The collateral used is funded as an overnight amount and carries a charge, so it is not free the way using your own cash is.

What does it cost to buy options with collateral?

The utilised collateral attracts a delayed-payment charge of 0.05 per cent per day, Rs 50 per lakh, or 18 per cent a year, applied to the amount used, not the full option value. Using your own cash to buy the option avoids this charge.

Do I need cash in the account to buy options?

Yes. A positive cash balance is required to buy options against collateral. If the account is in debit, the trade will not go through cleanly, and the funded collateral would keep accruing the daily charge until it is cleared.

What is the 50:50 cash rule?

For overnight F&O positions, at least half the required margin must be cash or cash-equivalent collateral, and the rest can be pledged stocks. Using non-cash collateral beyond that half creates a cash shortfall that attracts interest.

What is the shortfall charge if I breach the 50% cash limit?

Using non-cash collateral beyond the 50 per cent limit attracts 0.035 per cent per day, 12.775 per cent a year, plus 18 per cent GST, on the shortfall. From 1 April 2026, a cash shortfall above Rs 5 lakh instead raises F&O brokerage to Rs 40 per order.

Can I write options and trade futures with collateral?

Yes. Collateral margin covers equity intraday, futures, and option writing or shorting, within the 50:50 cash rule for overnight positions. It cannot be used to buy stocks or ETFs for delivery.

External references

References

SEBI circular SEBI/HO/MIRSD/DOP/CIR/P/2020/171, dated 9 September 2020, on the margin pledge and re-pledge system for client securities.
Zerodha Support, “Can I buy options using collateral margin?”, Console pledging help section.
Zerodha Support, “Which stocks and mutual funds can be pledged” and “Will Zerodha provide margin on liquid funds?”, on the 50:50 cash-collateral requirement.
Zerodha, approved list of securities for pledging, zerodha.com/approved-securities.

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed: 1 July 2026
Conflicts of interest: WebNotes is independent. No relationship with any broker, registrar or bank named in this article.