Option premium credit on Kite funds
When you sell an option (sell-to-open a call or a put on Kite ), the premium received from the buyer is credited to your trading account. This credit appears in the funds page and contributes to margin available.
Mechanics
For a Nifty 50 option example:
- You sell 1 lot of NIFTY 23MAY 22000 CE (lot size 50).
- Premium received per share: Rs 100.
- Premium received per lot: Rs 100 x 50 = Rs 5,000.
The Rs 5,000 credits to your account on the trade day. Simultaneously, the SPAN + exposure margin for the short option position is locked.
| Action | Account effect |
|---|---|
| Sell 1 NIFTY CE lot at Rs 100 premium | +Rs 5,000 cash credit |
| SPAN + Exposure for short call (say Rs 1,30,000) | Rs 1,30,000 margin used |
| Net change in margin available | -Rs 1,25,000 (margin used minus premium credit) |
Premium credit + margin requirement
The premium credit reduces the effective capital you need to deploy. For the example above, you need Rs 1,30,000 in margin available, but Rs 5,000 of that is covered by the premium credit. Net new funds required: Rs 1,25,000.
This is sometimes confusing: the “margin used” displayed includes the gross requirement (Rs 1,30,000), not the net after premium credit.
Premium as cash-equivalent for the 50:50 rule
The premium credit counts toward the cash component of your F&O margin (the 50% cash requirement). For option sellers running multiple short positions, the accumulated premium credits help meet the cash requirement.
If you sell options worth Rs 10,000 in premium and your F&O margin requirement is Rs 50,000 (cash component: Rs 25,000), the Rs 10,000 premium counts toward the Rs 25,000 cash requirement.
Closing the position
When you close (buy back) the short option:
- If LTP < Avg sell price: you buy back cheaper; net profit.
- If LTP > Avg sell price: you buy back more expensive; net loss.
The cash impact:
- Buy back at Rs 30 per share x 50 = Rs 1,500 debit.
- Margin released: Rs 1,30,000 (SPAN released).
- Net realised P&L: Rs 5,000 - Rs 1,500 = Rs 3,500.
At expiry
If you let the short option expire:
- OTM (Out of the money) expiry: No assignment; premium becomes fully realised profit.
- ITM (In the money) expiry: For index options, cash-settled at the intrinsic value. For stock options, physically settled (you deliver / receive the underlying).
For an ITM short call on an index, the settlement debits your account by the intrinsic value at expiry. The original premium credit is kept; net P&L = Premium received - Intrinsic value at expiry.
Time decay (theta)
The most common option seller motivation: time decay reduces the option premium each day. Selling premium at Rs 100, holding for 3 days, and buying back at Rs 80 captures the Rs 20 decay (theta profit).
The premium credit on the funds page does not decay; only the position MTM (and the buy-back cost) reflect the decay.
Premium credit on multi-leg strategies
For a credit spread (sell higher premium, buy lower premium):
- Net premium = sold - bought = net credit.
- Cash effect: only the net credit appears (sold credit minus bought debit).
For a debit spread:
- Net debit.
- Cash effect: net debit.
The funds page shows the net effect across the legs.
See also
- Margin available / used / cash on Kite funds
- SPAN and exposure margin on Kite
- Margin required on order window
- Margin on exit calculation
- Delivery margin field on Kite
- Pay-in funds explained
- Collateral (equity) on Kite
- Collateral (liquid funds) on Kite
- Dashboard / funds calculation flow
- Positions P&L vs funds gains differences
- Intraday profits from yesterday on Kite
- How to fix missing decimal values on Kite funds
- Minimum stock SIP amount on Kite
- Sold stocks shown as negative positions
- How to fix Positions tab showing profit when buy avg greater than LTP
- F&O LTP change on positions before market opens
- Kite Positions tab explained
- Cash collateral shortfall interest
- Margin shortfall and auto-square-off
- Futures and options
- How to add Nifty / BankNifty options to the marketwatch
- How to add F&O contracts to the marketwatch
- Derivative lot size on NSE
- NSE derivatives expiry calendar
- Implied volatility
- Kite (Zerodha)
- Kite web
- Kite mobile app
- Zerodha
External references
References
- NSE Clearing, Option premium settlement methodology, nseclearing.com.
- SEBI, F&O margin and premium framework, sebi.gov.in.
- Zerodha Support, Short option premium credit, support.zerodha.com.