How is margin calculated for futures and shorting/writing options?

F&O
1

Can someone explain the basis on which margins (SPAN+Exposure) required be computed, both for options and futures.

3

Futures and shorting/writing options carry unlimited amount of risk. To ensure no defaults, initial margins are asked to take such positions and then any marked to market losses has to be made good off.

There are two components to the margins

  1. SPAN margin is calculated by standardized portfolio analysis of risk (SPAN), a leading system that has been adopted by most options and futures exchangesaround the world. SPAN is based on a sophisticated set of algorithms that determine margin requirements according to a global (total portfolio) assessment of the one-day risk for a trader’s account.

  2. Exposure margin is charged over and above SPAN by Indian exchanges.

Calculation of SPAN is quite complex and trademarked by Chicago Mercantile exchange. Most exchanges license this out from CME. Our margin calculator closely mirrors this SPAN.

Our margin calculator shows SPAN as per the files released by the exchange(5 times during the day). Exposure margin changes with LTP of the future contract.

Below is the formula to calculate the exposure margin blocked on terminal:

For Futures

Qty * bought price * Exposure percentage

For Options sell

(Qty * (Underlying LTP+Premium)) * Exposure percentage

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