NSE has substantially slashed the margins needed for hedged strategies in what is going to be one of the most monumental moments in the history of Options Trading in India. Here is a video we made to help you understand the new margins better
You can read more in the NSE presentation here
Here are the key points:
- There is not much of a change for margins of futures
- There is no change in the margins for Long Call and Long Put as they are premium paid buy positions and margins do not apply there
- There is no reduction in the margins for Short Call and Short Put. In fact, this has slightly gone up
- There is a huge reduction in the margin for all hedged strategies with limited losses. These are Spreads, butterflies, condors, etc
- There is a reduction in the margin for straddles and strangles as well
- If you buy protective hedges for futures, margins will go down nearly 80%. That is, buy a put for protecting a future buy and buy a call for protecting a future sell.
There is as much as 80% drop in the margin for hedged strategies. This move will help move the option buying crowd to an option selling crowd. This will also incentivize sellers to buy protection and convert their naked sold positions to hedged strategies.
We love this move by the NSE and the regulators. This will help reduce the risk in the system, protect the capital of the retail investor, and give rise to a new class of traders who trade with calculated risks.