Does the margin needed for Options writing depend on Current Option premium? Eg:Nifty OTM 8800 CE price on a day is Rs 10. Near expiry,this price becomes Rs 2. How much margin is needed in both cases?

General
1

I want to know whether the margin money required for selling an Option will depend on the option premium on that particular day or is it fixed for each strike price ?

Also, does the Margin money needed decrease near the expiry ?

Eg : for Nifty 30-Jul CE 9000 , the premium is Rs 7.20 . The SPAN calc shows that for selling this Option, the Total Margin Rs 25,442 & premium receivable as Rs 163/- . Will this “Total margin” decrease near expiry ?

2

Margin money for option writing depends on the risk. Higher the premium, more the risk, and hence more margin.

As and when expiry approaches, the number of days left reduces, and hence risk also reduces. Since risk reduces, so does the margin required.

Yes margin for CE9000 will reduce when it gets closer to expiry.

1 Like
3

Hi Nithin, Thanks for the explanation. But as per the SPAN calculator, it seems that its not necessary that for higher premium higher margin is required. For Eg : for writing Nifty 9000 CE , SPAN calc shows ,premium is just Rs 125 but the Total margin is Rs 12,329 which is almost 100 times the premium received . Whereas , for writing 8700CE , premium is 1298 & margin is 25706 which is just 20 times . This is weird since it is more likely that 8700 CE may become ITM before expiry than 9000CE which means the risk is more in 8700CE . Still, why is the margin money for it less than 9000CE ?

4

Ah… margin blocked is not a multiple of premium, that is not the right way to look at it. SPAN margin is calculated based on risk, and deeper OTM, the lesser the risk. But this risk isn not determined just by the premium, many other factors go into determining it. Check this post: http://zerodha.com/z-connect/queries/stock-and-fo-queries/basics-on-options-shortingwriting

5

Thanks Nithin !! I agree with you. Actually, just now I realized that the way SPAN calc displays Margin is bit different. Instead of independently displaying the margin for each query, it keeps on adding the margins of our previous queries due to which it was displaying the total margins of all previous queries.
This is quite misleading. I would suggest to add an option to only calculate & display values of each query independently instead of considering all previous queries. That way it will be much more clear to the users.