This is for all those who sell intraday straddles/strangles in Nifty of BankNifty.
Let’s assume we want to enter a 35200 straddle of BN and we decide to buy 36500 CE and 34000 PE to gain margin.
Following are the screenshots of zerodha showing the margin required for the straddle as well as margin required after adding the buy options:
and after adding the bought options:
As we can see above we are able to free approx 10L of capital by buying far options.
Assuming we lose 5 points (including all costs) in these bought options daily and assuming we are selling strangles 4 days a week i.e. 16 days a month, the total cost per month is Rs 5 X 250 X 16 = Rs 20,000.
In summary, we are incurring Rs 20,000 per month to get extra 10L of capital. This is 2% cost of capital per month.
My question is, is this 2% cost of capital to gain margin justified ? What kind of traders will actually benefit from this ?