E. G. Sell 7900 Call @ Rs 70; Buy 7950 Call @ Rs 50; Max. Loss = Rs 2250. Why do I need to put up a margin of Rs 25000? Would someone help me understand this anomaly.
What margin would I require for an option credit spread strategy? I believe it should be the maximum risk on the trade but the margin calculator shows margin nearly same as selling a lot
Why ATM machine need a pin number, locked and need a security guard to monitor when people are coming just to take their own money deposited with banks? the same can be correlated to your query.
Once the spread position is taken what if only long side is closed? and as we all know short side can theoretically incur unlimited loss and ended up losing more than 2250 as in above case with in few minutes after closing long, who will cover that loss? So considering all plausible worst case scenarios exchanges implement margin requirements based on SPAN systems. Broker doesn’t decide on margins but regulators do.
In hedged stategy like option selling and buying, do I still have to maintain option buying premium in cash or can I only hold collaterals?
To purchase Option you will need cash, collateral margin cannot be used.