Extra ELM on Expiry day?

General
1

I generally write covered calls with good margins. However on Nov 2024 expiry day (28th Nov), I received a margin call with huge negative margin requirements. I was able to cover that by squaring off few positions. Just so that it does not repeat on Dec expiry day… I am trying to understand it better. How much more margins are needed to comply with 2% ELM.

Let’s assume I wrote 1 lot (500 shares) of Reliance Industries 1500 CE. How much more margins (in Absolute & Percentage basis) do I need on expiry day?

Thanks so much @Meher_Smaran

2

Hi @Ddude

This additional 2% Extreme Loss Margin (ELM) will be levied on all short (sold) index option contracts on their expiry day.

For stocks like Reliance CE sell, Physical delivery margins continue to apply like before as this rule is applicable for only index options

Let’s take an example of Nifty 24900 CE sell:

  • For options expiring today (12th Dec 2024), The margins for selling 1 lot will be as follows:

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  • For options expiring next week (19th Dec 2024), The margins for selling 1 lot will be as follows:

Screenshot from 2024-12-12 09-12-28
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The net difference per lot size of 25 will be: 75438 - 65000 = 12938 Rs/-

In percentage terms, It comes around 20.70% increase in margins required per one lot.

3

I see that you guys have implemented the ELM blocking for tomorrow’s expiry today itself. I hope I don’t have to pay any DPC for today for the negative cash balance in the account. @Meher_Smaran

1 Like
4

DPC charges won’t be applicable as the extra ELM will not be added in the ledger.

2 Likes
5

I have hedged positions both in Nifty (3 lots of CE & PE sold with 6 lots of hedges for both - Lotsize 25) & Bank Nifty(1 lot IF - Lotsize - 15) & my current blocked margin for the positions is 1.26L - Now I get a mail & message in Kite saying I would be requiring an additional 99K as ELM for the expiry day.

You have mentioned that the increase is only 20% in absolute terms - if that is the case then 20% of 1.25L is ~25K - then why I am being asked ~100% more margin?

Is it same expiry hedging also does not provide any margin benefit on expiry day?

Is there is any calculation error wherein the correct lot size has not been accounted - bcos Monthly Nifty Expiry is old lot size of 25 & same with BNF with 15?

6

@Meher_Smaran @ShubhS9 - Can you pls answer as I need it urgently?

7

Simple calculation for additional ELM on expiry day for all short options positions: 2% * qty * strike price

(e.g. for -1 lot of Nifty 23000 PE, the addn ELM will be: 0.02 * 75 * 23000 = 34,500)

I think the 20% estimation provided above can’t be generalized as a rule.

And hence addn ELM will be independent of the long hedges that you may have

8

Good :+1:. I calculated & the extra margin requested is correct indeed.

But the policy in the quest to ban trading on expiry day is severely affecting positional trading which for no other option due to high vix increase has been dragged to expiry just to breakeven like in my case is really detrimental.

9

@Meher_Smaran @siva ELM margin on expiry if not maintain will I get penalized by exchange??

10

You will be.