# Calculation of LOSS, profit and additional margin requirement in OPTIONS SELLING.

Hi,

I have few questions on option selling, requesting you to have a look.

Let’s say, I am selling 1 lot of bank nifty @26800CE . Price for option is around Rupees 200.

Here are my questions.

1. What are the formulae to calculate required span and exposure margins to calculate total margin (Rupees 53,095) as provided in image above?

2. How to calculate profit and loss? With respect to price of asset or price of option premium of that asset?

3. How to calculate profit and loss with respect to price of asset?

4. a) Let’s say price of bank nifty moved to 26850. How to calculate loss at this price?
b) Let’s say price of bank nifty moved to 26750. How to calculate profit at this price?

5. How to calculate profit and loss with respect to price of option premium of that asset?

6. a) let’s say price of option while selling is Rupees 200 and it moved to 250. How to calculate loss in this case?

7. b) let’s say price of option while selling is Rupees 200 and it moved to 150. How to calculate profit in this case?

8. Above what price of asset I need to add additional funds to continue selling the option?

As a newbie here, I am totally confused.
I would be grateful to you if you could possibly help me with to clarify these concepts.

The margin calculation is carried out using a software called - SPAN® (Standard Portfolio Analysis of Risk). It is a product developed by Chicago Mercantile Exchange (CME) SPAN® is a registered trademark of the Chicago Mercantile Exchange, used herein under License. Obviously, higher the volatility, higher the margins.

Exposure margins in respect of index futures and index option sell positions are 3% of the notional value. For futures on individual securities and sell positions in options on individual securities, the exposure margin is higher of 5% or 1.5 standard deviation of the LN returns of the security (in the underlying cash market) over the last 6 months period and is applied on the notional value of the position.

Based on the option premium. You can see this both on Kite and Console.

The gross profit/loss will be 50 x lot size x no. of lots.

You’ll need to add funds when the money in your trading account is not sufficient to cover the SPAN + Exposure margins required to carry forward the positions.

You should definitely check out this module on Varsity and then this NSE FAQ on Margins -

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