Buy 1 Lot Nifty Futures (current month) @ INR 17,000. Will rollover to the next month, every month until December 2022 expiry.
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Buy 1 Lot x 17000 PE (December 2022 Expiry) @ INR 1000.
The margin required for this hedged setup is around INR 80,000.
Let’s presume I have 1.2L margin in my account.
Technically, the max loss in this setup is 1000 points (which is the value of the put) - and has already been paid for in cash.
Hypothetically, let’s presume there is a situation where the value of Nifty futures drops by 3000 points, and the value of the put increases by only 2000 points. In this case, my current P&L is -1000 points x 50 = INR-50,000.
So the fund balance here will be -10k.
Will the margin required for this setup increase / decrease as the price of the nifty futures increases / decreases? If yes, then any idea by how much?
Will I be charged a penalty for negative balance?
Will the loss in the futures be considered by the system as an MTM loss - and will the RMS square off my positions? Or will it consider the fact that my position is hedged with a put that will not expire anytime soon and keep my positions untouched?
Also -
Can I buy Nifty futures with my pledged margin? (I’m aware of the 50-50 rule).
Margin will increase if Nifty increases(overall contract value) but this will be offset by the daily marked to market (MTM) settlement credit in your account. If Nifty goes down, margin will reduce a bit but you will be account will be reduced by the MTM debit.
While your max loss for this setup is defined, you will face a problem where the futures is MTM settled(your loss of 3000 points will be realised from your account(1.5L) but your PEs profit is not realised until you close the position.
Your account will result in a debit due to the MTM loss and there will be margin penalty as explained here.
Your position will be closed by our RMS system as the options leg profit is not realised and the exchange requires margins to be presented through cash or collateral margin and not the unrealised profit from the PEs.