If I sell a naked option say NIFTY 14700CE the SPAN margin is 1,26,543 and Exposure margin is 21,761. Here the exposure margin is collected to cushion for the MTM losses and in this case comes to ~2% of contract value [14700*75]. This is perfectly fine
Now say I sell 14700CE and buy 14800 CE, the SPAN margin is 7,405 and exposure margin is 21,761. Now when the theoretical loss is 75*100 = 7500 why am I paying almost 29166 as margin?
Makes no sense to just copy the exposure margin [ 2% of contract value] from a non hedged position to a hedged position. Fine, you may keep a small percentage but not 3 times the theoretical loss lol.In the first example the exposure margin is about 17% of the SPAN margin. In the second example its about 294% of SPAN margin. This is unfair in terms of the ratio roi/risk for a hedged position vs un-hedged position
When SPAN - standardized portfolio analysis of risks is lower for a hedged position what is the rational behind copying the same exposure margin from a non hedged position to a hedged position?
Because there are few rouge traders who take positions and cut hedge leg leaving the entire portfolio naked which is risky for client and broker, there are cases where there is no span is charged and in those scenarios it leaves position without any margin blocked, hence to avoid or reduce any systemic risk exposure margins are charged.
If that happens just close thier position as risk management system of yours,warn them 2 times n 3 time permanent ban them from security market why because of few all suffers.show them in public.
-I have heard in thinkorswim you enter which type of strategy you want say verticle spread,calender spread,ic,ironfly decide first then it is locked square off whole or nothing
We need changes zerodha is Pioneer in bringing new thing pls bring it you are our last hope
That’s actually also a valid point. Just like the US if we actually get the same type of execution( either both legs or none) then we can actually think about reducing the exposure margin. With this feature of execution then definitely the exchanges can reduce requirement of exposure margin. Very true
You should develop some restrictions within the system perhaps. Like restricting selling stock (covered call) unless margin is sufficient. I am sure a high tech platform like Zerodha can implement such.