Notice Board

Implementing Order-level Hedge Benefit – New Margin Policy Framework

By 16/10/2020 No Comments

As we are aware that with effect from 1st June 2020, NSE’s new Margin Policy Framework has structurally changed how margins are calculated. Therefore, margins for naked positions in F&O will require more margins and hedged positions will require much lower margins in comparison. Read what has changed here – NSE’s New Margin Policy Framework – Higher Margins For Naked Positions & Margin Benefit For Hedged Positions In F&O

We’ve implemented required changes at our end to benefiting from new margin policy, clients can avail order-level hedge benefit i.e. while placing hedged trades. Refer to our SPAN Calculator to see the new margin requirement for yourself.

Check this below example of the margin required for a Bull-Call spread. The margin required for a Bull-Call Spread is now just ₹17652 with a margin benefit of ₹102813, almost 80% lower margins than what was required earlier. 

 

Important things to Know –

  • As pictured above, the margin required for Bull-Call Spread is ₹17,652, so if you have sufficient funds in your account to place both the legs one by one. But, make sure to place the Buy/long leg first (i.e., Long Call – 145*75 = ₹10,875)  and the second leg, when placed will automatically be hedged (i.e., Short Call).
  • Earlier, the full margin was required to place both the legs (i.e. ₹ 1,33,000) and the hedging benefit would only be realised after both the legs were executed. But now if one leg is executed (i.e., Long Call ₹10,875), while placing the second leg additional margin of ₹17,652.75 will be required. Here the Total Margin required will be just ₹28,517 instead of ₹1,33,000. Also, note that ₹4,762 premium will be received for selling the option. So technically the margin blocked will be around ₹28,030.
  • Once you entered into hedge position and if you try to square-off the long/buy option position first either by placing a pending order or actually exiting it completely, the margin required will shoot up in your account as the position will be naked without the buy option position. If the margin required is higher than the account balance, you will face a margin shortfall and our RMS team could potentially square off your positions. To avoid this, when exiting it is best to first exit the short/sell option position and then the buy options.
  • Margin required is subject to change as per the Exchange.

 

If you have any queries kindly post them here

 

 

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