There is a change in F&O Margin Policy again? Can somebody explain how this will affect us?


#1

Found this circular on one of our whatsapp groups.
How does this affect margins now?


@nithin @MohammedFaisal @siva


Increase in F&O Margins from 21st January?
Margin has gone up again
Another SEBI rule has come up
#3

SPAN margins are charged to cover for the worst possible movement in the contract you are trading for a single day. The exchange has now revised this to cover for possible volatility over 2 days. SPAN margins are charged by calculating the Price Scan Range of the index or the stock.

Price Scan Range(PSR) is the worst possible movement in a scrip in a day. PSR is calculated using the daily volatility of the scrip. It is 3 sigma of the daily volatility for index contracts and 3.5 sigma for stocks. The exchange also prescribes minimum PSR of 5% of the contract value for index and 7.5% for stocks in case the 3(and 3.5) standard deviation is lower than the above-mentioned minimum. This will now be multiplied by 1.41 to cover for 2 days’ price movement.

Exposure margins are charged over and above SPAN margins. This is 3% of the contract value for index and 5%(or 1.5 sigma, whichever is higher) for stock F&O. This will also be increased to 4.24% for index and 7.07%(or 1.5 sigma, whichever is higher) for stock F&O.

Short Option Minimum(SOM) is a minimum margin for all strikes of option short contracts that fall beyond the Price Scan Range. For instance, Nifty has a PSR of 762 points(covering a 7% movement). This effectively means that holding a 11700 CE or 10000 PE is risk-free, however, SOM of 3% is charged for such contracts. This will now go up to 5% of the contract value. There is no increase in SOM for stock options.

Basically, SPAN +Exposure margin will go up by a maximum of 41% of the current margins as volatility for 2 days is considered instead of 1. Margins for Nifty and Banknifty futures will go up by roughly 10K and 7K respectively

Here’s an approximate calculation of how the revision in margins will affect all future contracts.


#5

Someone in our group has posted this circular from NSE -

https://www.google.co.in/url?sa=t&source=web&rct=j&url=https://nseindia.com/content/circulars/CMPT39766.pdf&ved=2ahUKEwjB84vK_b_fAhWFYysKHX0GCQ8QFjAAegQIAxAB&usg=AOvVaw2wWtoRLLLIR1bhzS8ld6Qh

Margin had just gone up and now this. Just to give an idea, nifty margin used to be around 60000 and then under Asm, it became 80000 and now it will be 90000. That’s a 50% increase in margin. It’s my job to let you guys know. I don’t know how you guys are gonna feel about this but it is what it is. Amen.


#6

Looking at the circular, shorting OTM options would go up much more significantly… with the increase in minimum charge from 3% to 5%… increase in PSR and Exposure margin… getting ridiculous !!


#7

No problem IF Imp.V goes UP. :wink:

This is out of our control. :thinking:


#8

@nithin @siva Is really margin going up again for Options shorting?. Can you help us in understanding this. With this frequent revision of margins, I think retail will no longer be able to short options.


#9

Yes, margins will go up but nothing we can do as a broker about this.


#10

That was honest at least.


#11

Margin is going up for futures NRML, so subsequently option writing would be affected and intraday too would be affected.


#12

I know brother.


#13

Sorry, I didn’t understand what you just said there. Could you elaborate please?


#14

Simply If margin increase OPTION SELLER charge high PREMIUM to BUYER as SELLER RISK and cost increase which will reflect on OPTION IV.
IN SIMPLE LANGUAGE OPTION WILL COSTLIER against FAIR VALUE.

:face_with_raised_eyebrow:


#15

But last two months no premium increased other than election result week but bnf margin increased to 56000 from 42000


#16

Hmmm… But what do you guys care? You wanna believe in the government. You wanna believe they know the best. Lmao.


#17

Whether you believe the government or not doesn’t matter. But, you have to abide by the rule changes they bring in… No other go.


#18

Really? Then why do you guys complain when petrol prices go up or heck even when the networth rule was about to come up? Why you guys can’t find that to be systematic and obey it like obedient patriotic tolerant citizens that you tell me to be?


#19

I wan’t pointing anything specifically on you, it was a common point. Chill bro…

Now, tell what could we do if tomorrow SEBI hikes STT & brings net worth rule… We would get emotional and would blast sebi, but it would be of no use… Think practically


#20

I have heard this countless times and really what do I say? I’ll get back to you guys at some point in future. My good wishes for you till then.


#21

Simply again NON of the person is always right incl GOVT. BUT in lieu of RISK management we do know many things as RISK management FRAMEWORK SEBI can easily JUSTIFY their action both theoretically and technically.

IT’s all STARTED by our chowkidaar :triumph:
STRICT RULES ARE IMP but it should be implemented by BALANCED MANNER.


#22

YOU will get notice if you monitor sharply as VIX will not going to stable which impact PREMIUM.