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.