Why is the option order being rejected with a request to place it around the theoretical price?

Risk Management Checks:

Q1: Why are risk management checks in place for trading options on CubePlus?

A1: Risk management checks on CubePlus are a regulatory requirement imposed by exchanges. The primary goal is to prevent trades in options from happening at prices significantly different from their theoretical values.

Q2: Can you provide an example of how these risk management checks work in practice?

A2: Certainly! Let’s say a stock is trading at ₹95, and a Call option with a 100 Strike is priced at ₹5. If a buy trade is attempted at ₹50, it would be considered significantly away from the theoretical price.

Q3: What types of freak trades are addressed by these checks?

A3: These checks address both accidental and intentional freak trades. Accidental trades can occur when traders unintentionally place larger orders, while intentional ones involve fraudulent actors manipulating accounts with abnormal trades.

Q4: How does CubePlus handle Good Till Triggered (GTT) orders within the theoretical price range?

A4: Despite safeguards, GTT orders can be placed outside the theoretical range. However, when triggered, CubePlus applies execution theoretical range checks. If the order falls outside the range, it will be rejected, ensuring additional protection for traders.

Q5: How can CubePlus users prevent mistaken orders?

A5: It’s crucial to place orders closer to the theoretical price to avoid errors. Emphasizing order accuracy helps prevent orders from being mistakenly placed in the wrong option contract.

Q6: What is the overall objective of these risk management measures?

A6: These measures collectively aim to maintain market integrity, prevent abnormal price movements, and safeguard traders from significant losses resulting from freak trades.