Bull call spread margin required confused?

[umabathy]

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

[Srinivas]

It will be instant after both the positions are executed.

[lakhanpahuja]

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

[nkaliape]

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

[pnsudesh]

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?

[nithin]

@pnsudesh

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

SPAN margin for a hedged postion

I have a question about margin calculations. If I buy an at-the-money NIFTY put and a NIFTY future, both with same expiry, say April 2014. I then sell an ATM NIFTY call with same expiry. I am essentially trying to setup a put-call-futures parity condition, which is a hedged position. I expect the margin for such a position to be significantly low, but when I calculate the same using the SPAN calculator, I get the total margin for this position as Rs. 31,592 (for strike price of 6700). Can anyon…

[pnsudesh]

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.

[nithin]

@pnsudesh

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.

F&O margin calculator - Zerodha Margin Calculator , 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.

[divyanshisharma]

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.

[Umesh_V]

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

[ShubhS9]

@Umesh_V

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?

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.

[Umesh_V]

Thanks Shubh59

[Soumen_Siddhanta]

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

[ShubhS9]

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

[Soumen_Siddhanta]

Thank you

[Ram_Niwas]

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??

[ShubhS9]

@Ram_Niwas

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 .

[pankushri]

@ShubhS9 @siva
how to deal with ITM bull call spread?? in my case ITC 215 CE (BUY) 220CE (sell). now i am facing bid-ask gap.

[siva]

@pankushri

now i am facing bid-ask gap.

what is the error?

[pankushri]

no error… There is gap between bid-ask price. so if i exit the trade i will have slippage.
and end up losing more.