Bull call spread margin required confused?

Assuming that I have 40,000 cash available for fno
To buy bull call spread margin require is 38216 (buy 10300ce and sell 10500ce) as shown in Zerodha margin calculation so my question is can I buy BCS
Or first I have to 60,000 cash available bcoz if I sell ce that requires 60000Uploading…

Selling 1 lot Nifty 10500CE requires a margin of 52k and you receive a premium of 5.5k. Buying Nifty 10300CE requires a premium of 11k.
So the margin required in your account before taking the position is 52k + 11k - 5.5k = 57.5k.

The entire amount of 57.5k has to be there in your account for you to be able to take these positions. Once both the positions are taken, the margin benefit will be calculated by the span system and the margin benefit amount will be released back into your account.

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How long will it take for the span system to release the margin benefit?

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It will be instant after both the positions are executed.

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It’s mean first i have to pay full require amount then I get margin benefits example
Buy ce10200(margin) =75*141=10575
Sell ce10400(margin) =52000
Total amount to take positions =62575
After that I will get margin benefits

this margin requirement is ridiculous. As you see the risk of losing is only 75*200 = 15000 (MAX)… when why the heck it demands 62k margin

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Agree. @nithin can you help us understand the margin requirement here? I am sorry I have not tried this by myself.

When the maximum potential loss is limited, why would broker expect a full margin while initiating bull put spreads?

Thanks @nithin. I understand the execution risk which makes Zerodha to require (almost) full margin. Can Zerodha take it up as enhancement to treat the spread orders as one order to force execution of both orders? The reason this is coming up is because traders look into US counterparts where brokers require very minimal collateral for spread orders.

https://zerodha.com/margin-calculator/SPAN/ , so the SPAN calculation is designed by CME (Chicago mercantile exchange). Almost all exchanges use SPAN to calculate margins. So this is what is required wherever you trade.
In India we have an additional exposure margin which SEBI asks to be put, but that we can’t do anything about.

Bull call spreads are an options strategy that involves purchasing call options at a specific strike price ,while also writing the same number of calls on the same asset and expiration date but at a higher strike price. A bull call spread is used when a moderate rise in the price of the underlying asset is expected.

Hi Nithin,

One quick question, I wish to sell 1 lot of Nifty 10600 CE expiring on 9th July and wish to buy 1 lof of Nifty 10700 CE expiring on 9th July .

if I execute the sell option (10600 CE) first then I would need about 120000 INR and if I buy the second leg i.e. buy 1 lof of nifty (10700 CE) then considering I get a margin benefit of 80K , hence the total amount needed is 40,000 INR, however I should have at least 120K + 1K/2K (for buying 10700 CE) in my account.

let us say I do the other way, I will buy 10700 CE first and then sell 10600 CE, do I still need to have 125K INR or just 40K INR should be sufficient to execute both the trades?

Thanks,
Umesh

If you execute Buy leg first and then Short you will be getting margin benefit beforehand, and 40k will be more than sufficient as margin requirement for this strategy is 23.6k + Cost of Buying Option.

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Thanks Shubh59

And when I sale (square off) then what should I do? First sale call option then buy call option?

When you want to exit, square-off Short positions first and then square-off Long positions.

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Thank you :slight_smile:

in a bull call spread , what happens if I square off long position first & then square off short position. is there any penalty or other problem occurs??

Doing this won’t be a good idea now as there are Peak Margin rules applicable, which means Clearing Corporation will take snapshots of your positions at random times throughout the day to check whether there is sufficient margin maintained for the trade, shortfall in the margin will result in peak margin penalty. You can learn more about this here .