Margin policy on credit spread or iron condor?

hi nithin. i am rakesh here. i have query regarding credit spread strategy?

for example:

nifty : ATM 8000

sell OTM 8100 27NOV2014 ce 104

buy OTM 8200 27NOV2014 ce 60

sell OTM 7900 27NOV2014 pe 52

buy OTM 7800 27NOV2014 pe 33

i need to give margin for both the call and put writing, or else i can give for only one writing of call or put as it is a very conservative trading. i think you understand by point.

thank you.

Rakesh, you can use Zerodha SPAN calculator to getting know the margin required for this strategy. 

Yes, you will get a margin benefit as the risk is relatively lower compared to shorting naked calls. But as you can see above it is not as much as you are expecting. The reason for this being there is an execution risk also to a strategy like this, that the exchange has to consider. What if you exit only your long options, now you will have two short options open in your trading account with lesser margin than what is required. 

Also, all the margin requirements is regulated by the exchange, so what you see on the SPAN is what is asked by the exchange and this is not something that the broker controls. Exchange even charges penalty if the margin on an overnight basis reduces to below the minimum SPAN margin requirement. 

1 Like

Hi Nithin,

In context to the answer you gave, can i please know how about the exposure margin which is decided by the broker, can it not be waived off for a client who exclusively wants to trade IRON CONDOR & promises to be in the strategy throughout the tenure of the trade

please advise

Unfortunately Promises are not considered as collateral in stock markets.

I agree Siva, by promise I meant there has to be a system in place at zerodha’s end which willl restrict the client to square off any one leg from the spread…!

Some times people who entered in to those strategies want to cut only few legs and are sourced with cash and in that case we cannot block them by doing so.