Hedge Nifty Futures (current month) With Nifty Fut (next month)

F&O
1

Let’s say I am bullish in the current month’s expiry in Nifty so I Buy Nifty Fut (November) whereas I am bearish in the next month’s expiry so I Sell Nifty Fut (December).

So my question is:-

  1. Will I get the margin benefit for hedging Current Month Futures (Long) with Next Month Futures (Short)

  2. If I get the margin benefits for hedging then what will happen if I have Rs 5000 left in my fund balance after taking the position and nifty crosses 500+ points in 1 day. In this case, my Current month-long position will show +25000 profit whereas my short position will be in loss of -25000. Will I have to add up any funds to maintain my position or its good to go? with what I have in my fund balance (rs 5000).

2

Hi @Ritesh40750

  1. Yes. You will be getting margin benefit for hedging Current Month Futures with next month future. You can calculate the approximate margin requirement for all your trades here

  2. Although the corelation between your positions will be positive, Please note that the gain/loss may not be exact. Also, do note that F&O margin requirements are based on SPAN and Exposure margins . The SPAN margin is calculated on the entire portfolio of F&O positions you hold. Some trade positions that reduce the risk for your portfolio lead to a reduction in the margin requirement. In case you exit such positions without closing the other open trades, your margin requirement may shoot up.

One more case which might be applicable to you is this : The exchanges publish the margin files multiple times during the day, among them the last final file is published at 5:30 PM which captures the stock’s movement during close market hours, and accordingly the margins get updated in the End of Day (EOD) file.

The margin requirement displayed on Kite captures the last available file from the exchanges. So, the margin requirement you see on the platform can change after the market closes on the basis on the EOD file.

You can avoid margin shortfall in such scenarios by maintaining a healthy buffer of funds in your Zerodha account over the margin requirement. In absence of significant price movements, a buffer of 5% of your margin requirement should suffice on most days.

You can also read more about hedged positions here

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