Just to quote an example. I have 60000, planning to buy 2 lots of nifty futures at CMP. Same time planning to buy 2 lots of 6700PE at CMP. checked in the SPAN calc and it looks like it is possible within the planned investment.
Will the system square off my position in the future if nifty goes down by say 300 points, my assumption is although I lose in the futures, my put should offset the same amount. since I have locked in my loses. Only thing which should not happen is the system squares off position in the future, since it is mark to market.
Can anyone confirm the squaring off scenario
Vijay
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Vijay,
The profits you make from puts is notional unless it is sold. Even if you sell the puts, the actual credit in the sense will come through only on T+1 day (next day) to make good of any losses.
But that said, as an RMS team we understand that this position is hedged and we will usually square off positions only when the margin in the account drops below the SPAN requirement.
So in the above example, if you buy futures and buy puts, SPAN is around 10k and total margin is 20k. So if you had 60k in your account for 2 lots, 20k would be the span requirement (SPAN is dynamic and can change during the day) and you will have almost 40k left. So if you loose 400 points on 100 Nifty, the margin in your account will drop below the SPAN (remember any gain in puts won’t get added to the margin unless you sell it) and we will probably square off the position. The reason for square off is also because if we don’t the next day exchange will charge a short margin penalty to you.
Hi Nitin,
Thanks for the clarification.
Vijay