When we take any spread position, we get the margin benefit.
But I’m curious is to what happens during extreme volatility period when ELM hits. Do people need to add margin during that time as well?
Also, post new F&O rules, do people who trade spreads will also face additional margin requirements during the day of expiry?
When you take a spread position, the margin benefit is applied because the risk is considered lower due to the hedged nature of the position. However, during periods of extreme volatility, several factors come into play.
Extreme Loss Margin (ELM): If the ELM increases significantly due to heightened volatility, your overall margin requirement could rise. In such cases, if your available margin falls short, you may be required to add additional funds to maintain your position.
Day of Expiry (Post New F&O Rules): Under the updated F&O regulations, spread traders can face additional margin requirements on the expiry day. This is because the risk associated with positions.
To manage these risks:
- Monitor your margin levels closely, particularly during periods of high volatility or near expiry.
- Keep sufficient buffer margin in your account to avoid sudden margin calls.
For more details please check the below support article related margins.
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