How does a brokers risk management software handle hedged positions?
Does it auto-square off one leg, if it has crossed a certain negative limit irrespective of the fact that the other leg is in profit, or does it consider the overall position?
E.g: Nifty @11350.
I am moderately bullish and create a bull put spread: Sell 11300 PE and buy 11250 PE.
Now, if Nifty starts falling against my expectation, the 11300 PE will be in a loss, but 11250 PE will be in profit. Max loss is limited and fixed, due to buying 11250 PE (hedged), but will the broker software auto-square off the losing 11300 PE after a certain limit is reached?
@nithin Please help. Also, is the method of handling such scenarios broker specific or is it common for all brokers ?
(Like Zerodha might consider overall hedge, while some other ABC broker might square off after one leg crosses a limit? (By the way, i am not Aniket )
I saw a quora article see the red circles, and hence my question:
@siva-reddy Since you are from Zerodha, so you confirm that Zerodha’s risk management wont do an auto-square off on one leg in this case (if i got you correctly), and what you mentioned is not a generic statement as what is the ideal case, right?
)