Margin requirement for trading F&O is set to go up in 4 phases starting - 14th Sep, 2018


#1

From our support article, putting it up for discussion here.

Why have margin requirements for trading F&O gone up from 14th Sep, 2018?
Exchanges in consultation with SEBI put out a circular on September 1st introducing Additional Surveillance margin (ASM) in addition to SPAN and Exposure. This increase in margin was to safeguard the ecosystem in case of extreme volatility in the market.

Currently, the Initial margin which includes SPAN and Exposure margins cover the risk of around 8% movement in indices and between 12.5% to 30% movement on stocks in one trading day. Due to the above circular, by November 2018 margin requirement for trading Index contracts would have gone up to 10% (increase in 2%) and for stocks between 17.5% to 35% (5% more).

This increase was planned by adding this additional surveillance margin (ASM) to the exposure margin, which would have meant no margin benefits on positions that hedge each other. So if a client had long SEPT Nifty future and Short OCT Nifty future, this additional exposure margin increase due to ASM would remain the same.

Exchanges have corrected this by amending the circular and ensuring that this additional increase in margin is on SPAN. Here is the link to the latest circular. Now, this additional margin will reduce on a portfolio level if there are positions that hedge each other in terms of risk. So in the case of the above example, this ASM would also reduce proportionately as SPAN margin requirement drops for holding Long SEPT Nifty future and Short OCT Nifty future.

How exchanges have done this is instead of adding Additional Surveillance Margin as specified in the above mentioned circular dated September 01, 2018 to the Exposure Margins, Price Scan Range (PSR) used for computation of Initial Margins has been amended, in steps (4 times), to increase the coverage of risk arising out of change in underlying Index / stocks to cover risk for 10% change in underlying indices and 17.50% change in underlying stocks.

Refer this page on NSE website to know more about PSR & Sigma.

Hence margins for trading futures and options will go up in 4 phases starting September 14th, make sure to have sufficient margins for your F&O positions to cover for this increase. Any shortfall in margin will attract margin shortfall penalty and may be squared off at the discretion of our Risk management (RMS) team.

Click here for the NSE circular.


Additional Surveillance Margin in Equity Derivatives Segment (Now for Index Options & Futures)
#2

So for Nifty option, selling would require 75k margin instead of current 45k?
ROI for option seller and strategist would reduce drastically.
I believe, this along with physical settlement would reduce liquidity.


#3

It will be basis the strike. The general idea being the margin will have to cover a 10% move in the index. So if market at 10000, 10100 calls should need enough margin to cover move upto 11000. So 900 x 75. 11200 calls will need 800 x75. So on in crude definition.


#4

Will this affect intraday margins as well?


#5

So do the margins change for every strike price? I thought the increase in margin is constant across all strike prices except capped at 2 percent for 5% OTM strikes… @nithin


#6

Hi Nitin , want to know whether there be change in equity intra day margin as well or for only f&o?


#7

Hi @nithin Will this affect intraday margins as well (Position opened & closed the same day) ?


#8

Yeah, intraday is 40% of SPAN + Exposure. So if SPAN+Exposure goes up, intraday also goes up.


#9

Like I said above, it was just a crude explanation.


#10

No, only for F&O.


#11

How does this change Impacts in Intraday of Options?
do we need to maintain the above mentioned Margins for Intraday as well?


#12

Yeah, intraday is 40% of SPAN + Exposure. So if SPAN+Exposure goes up, intraday also goes up.


#13

Is the Margin Calculator in the Zerodha updated for all segments?

Like FnO/BO/CO? If not, when will it be updated.


#14

The new margins go up tomorrow at the exchange. Once they update, it will get updated on the calculators. So most likely by tomorrow evening. But roughly 5 to 7 % increase over the current margins.


#15

will option buying margin be increased?


#17

Is there any margin in option buying? :roll_eyes:


#18

No there isn’t. But if you are having long options in stock option contracts which are compulsory physically settled on expiry - you would need margin from 4 days before expiry. This had to happen to ensure long option holders have enough money to give/take delivery of the entire contract. From the email we have sent to all our clients.

The margin requirement for Long/Buy option positions in compulsory physical delivery contracts

From September expiry onwards, the exchange has mandated that margins be blocked for long options (Call & Put) 4 days before expiry (i.e Friday EOD - the week prior to expiry week) on any compulsory physical delivery contracts. Currently, there are 45 stocks which are settled with the actual delivery of stocks, this list is going to increase to cover all F&O stocks in the next few months. Check this list to stay updated on stocks which are to be compulsorily settled physically.

Margins are required to ensure that clients with long options have sufficient funds to either take or give delivery of the underlying stock on expiry. The delivery margins applicable will be a percentage of the VAR + ELM margins (Check out this NSE FAQ to know more about VAR & ELM). The delivery margins will be applicable in the following manner.

Day
Margins applicable
Expiry - 4 Day (Friday EOD) 20% of VAR + ELM
Expiry - 3 Day (Monday EOD) 40% of VAR + ELM
Expiry - 2 Day (Tuesday EOD) 60% of VAR + ELM
Expiry - 1 Day (Wednesday EOD) 80% of VAR + ELM
On the expiry day, you need to maintain a margin of 50% of the contract value (or SPAN+Exposure), whichever is higher. Please maintain the required margin in your account to ensure that your positions don’t get squared off (For long puts, you need to hold the stocks in your demat along with the margins). We have explained our policy on settlement of compulsory delivery derivative contracts here in detail.

Regards,
Team Zerodha


#19

I have couple of open short positions in NIFTY for 11200S and 11700S. Have covered calls at 12000B and 10900B.
How much margin will I now need. Even zerodha support cannot answer this question despite being on the line for 15 mins.
Earlier margin was 104000 approx. Any immediate help through official channels will be helpful.


#20

Why can’t things be kept simple?

This is what the World’s largest Option Exchange does or requires!

Why SEBI is doing all these drama? Awareness cannot be promoted with penalty rather informed participation should be encouraged. I think first the lot sizes must be brought down such that retail traders can take less risk. These things are creating an additional veil of resistance.


#21

So when is zerodha going to update this new calculation in its margin calculator? Because many of us retail traders looks at the margin calculator of zerodha to know how much margin is required without bothering much about the concept.