1.) Margins will keep on increasing in case of ‘Bull Put Spread’ going deep ITM.
As long as the position is hedged, margin increment will not have any impact on your position.
2.) But the positions will not be squared off,
No position won’t be squared off until the hedge position is maintained.
3.) But we will have to face short margin penalty because M2M loss of short option will be considered but M2M profit of Long Option will not be considered.
Options Mtom will not be part of daily obligations for short/long positions.
So if the short position is making a loss of 10K & the long position is making a profit of Rs 8K, the margin used column will consist of Rs 10K because it calculates on the derivative max loss position in the portfolio.
Since your position is hedge it will not have an impact.
Hope this clarifies your doubt.