Confused about peak margin penalty when selling credit spread or iron condor

I am confused about the new rules about peak margin.
Lets say I want to sell a credit spread - if I buy call first and than sell the call - total margin requirement will be higher because system will not know I am creating spread so it calculate separate margin for each trade at first and eventually reduce overall margin?
So one should always create higher margin position first ? i.e. sell position in case of option?

Also, same question about exiting this position …one should always exit sell position first ?

What about intaday ? if we create a spread …and intraday square off …what should we do …sell leg first than buy and exit sell leg first than buy? @ShubhS9 @ksksat @portfolioplus911

When you execute Long position first, you get margin benefit beforehand and don’t need full SPAN + Exposure margin to take Short position.

So if you have limited capital, it is ideal to execute Long position first and then Short while getting into a trade and while exiting, square-off Short position first and then Long position.

Same as above for Intraday as well.

  1. Let me ask by giving an example …lets say I accidently removed the hedged leg (buy position of the spread - lower margin) and due to that margin requirement is increased and I don’t have enough free balance in my trading account. For example, margin shortfall is only 5000 Rs. for example So it will be subject to penalty? I am confused because it says until march only 25% of the peak margin is required. Can you give an example to show this 25% of the peak margin requirement?

  2. Also what if one can transfer required funds within 5 minutes of becoming aware of shortfall? will that avoid penalty ?

Yes, this can be subject to penalty.

This is the minimum margins brokers have to collect with respect to SPAN + Exposure margin.

Regarding peak margin, only thing you have to keep in mind is to have sufficient margins in your account when in trade, if there is shortfall it can result in peak margin penalty.

Clearing Corporation takes snapshot of traders position at random times on four occasions throughout the trading hours to check whether sufficient margins are available. You can transfer funds when there is shortfall, but if in that period CC took snapshot of your position, there will be penalty.

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1.Well, until march one needs only 25% of total margin required to avoid penalty correct? if so lets say total requirement was 100000 and as long as client has 25000 (and not the total required ) - there should not be any penalty correct?

2.Or lets say I noticed that margin used is more than margin available - there will be penalty?

3.Also penalty rate is 0.5% and it will be debited from client account by end of the day?

This provision for blocking minimum margin of SPAN + Exposure is for brokers, to cap the intraday leverage offered.

You will have to maintain whatever is the margin requirement, a shortfall in this will result in a margin penalty.

As explained above, if you are not maintaining sufficient margins for your trades, this will result in a shortfall penalty.

Explained here. This will be deducted when charged by the exchange which is after T+5 days.

1.So when I try to create credit spread …I should buy long position so later when I try to create short position …it will automatically reduced required margin when create short position?
2. Or I need full selling margin (before order is executed) even though I have long position in place? and system will than reduce the margin blocked?
3. For example lets say a scrip requires 280000 margin for selling PE but if I already have bought hedge (created buy position first) margin req. will be reduced to 132000 (approx) for creating short position?

If you have already taken a Long position, you do not need full SPAN + Exposure margin to take Short position as having already executed Long leg, you get margin benefits beforehand.

Just making sure - it has not changed from dec. 1 correct? i.e. that one needs full margin even though he has long position ?

No changes in this, you will continue to get margin benefits.

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What in the case when we do ‘Exit All’ in Positions tab, suppose all our ‘buy hedged’ legs are removed first and Sold Option positions are squared off some milliseconds after, and we get margin call just for that fraction of a second when hedged positions were squared off, can we get ‘Peak Margin Penalty’ in this scenario from the Exchange/CC ?

Exchange takes 4 random screenshots during the day, so if that screenshot is taken during this period, there will be peak margin penalty.

Hence, it is always best to square-off higher risk/margin position first and then exit the long option position.

Then I’ll request you to ask your technical team to include this feature in Kite, where we can slide our positions’ row ‘up and down’ so that we can place them in order of higher margin positions first and hedged positions later, at the time of clicking ‘Exit All Positions’ from positions tab. (Because positions are squared off in the order in which they are stacked up in the positions’ tab).