Clarifications on Hedging, Basket Orders, and Margins

[KarthikAcharya]

Hey @sravan_kumar2

@sravan_kumar2

Query 1: If I sell a futures contract (not for intraday) and want to buy a far out-of-the-money put option, is that allowed? For example, if I short a Bank Nifty futures OCTOBER contract on October 1st, can I purchase an OCTOBER monthly expiry put option that is trading at Rs. 20?

Yes you can sell a future and buy a put option at Rs 20 provided it’s in the allowed range.

@sravan_kumar2

Query 2: How does it work When I create a basket order? For instance, if I short a call option and then buy another far out-of-the-money call option for hedging (assuming I have enough capital for hedging ONLY), will the basket order execute as planned?

There is a concept of required margin and final margin. Required Margin displays the margin that is required to place all the orders in the basket. Final margin displays the eventual margin that will be blocked in the Zerodha account after the order execution.

Hence you would have to maintain the required margin while placing the order

You can learn about basket orders here.

@sravan_kumar2

Query 3: Why does the margin requirement change even when I have a hedge position? How can I calculate the maximum margin I might face?

You can check on this link to understand the methodology.