Why is margin getting charged on long/buy option position?

As on 20.01.2016 I am holding:

2 Lot of Nifty Futures ,

20 Lot Nifty 8000 Call Jan Expiry,

41 Lot Nifty 7800 Call Feb Expiry,

162 Lot Nifty 7900 Call Feb Expiry.

I want to know that why NSE has charged initial margin of Rs. 2,45,580/- for 2 lot Nifty futures whos initial margin is only Rs. 54,804/-. And options premium is already paid by me?

Before knowing how much margin is blocked one should know how margin required is calculated.

For this NSE uses SPAN margin system. SPAN is short for Standard Portfolio Analysis of
Risk developed by CME and is used by many exchanges and clearing houses to calculate margin requirements for futures and options on future contracts.

SPAN establishes margin by determining what the potential worst case loss a portfolio will sustain over a given time frame (typically set to one day), using a set of 16 hypothetical market scenarios which reflect changes to the underlying price of the future or option contract and, in the case of options, time decay and a change in implied volatility.

Basically it is a method to integrate both futures and options on futures contracts into the same system to assess a portfolio’s risk.

The first step in calculating the SPAN requirement is to organize all positions which share the same ultimate underlying into grouping referred to as a Combined Underlying group. Next, SPAN calculates and aggregates, by like scenario, the risk of each position within a Combined underlying, with that scenario generating the maximum theoretical loss being the Scan Risk. The 16 scenarios are determined based upon that Combined underlying’s Price Scan Range (the maximum underlying price movement likely to occur for the given timeframe) and Volatility Scan Range (the maximum implied volatility change likely to occur for options).

The Scanning Risk is then established by adding up the risk of each futures expiration
month and each strike price for each option contract. As part of the calculation for determining
risk, SPAN allows different futures and options months for a particular underlying to offset one
another in the scanning process.

Next, Inter-Month Spread Charges are added to account for the basis risk between contracts. The sum of the Scanning Risk and the Inter-Month Spread Charge equals the underlying Risk.

If any Inter- underlying’s spreads exists, they are also considered.

As a final risk check, SPAN totals the gross number of short options and assesses a charge for
each one. This total charge is the Short Option Minimum.The summation of all underlying’s Initial Margins is the Portfolio Initial Margin.

So, finally why more initial margin is required for the above position is as it considers margin required on incremental level instead of individual level.
SPAN system is based on VAR model.VAR is not a coherent risk measure as it violates sub-additivity property which means at times the overall risk of addition of two risky positions is greater than sum of their individual risks and ideally it shouldn’t be the case. As SPAN system is based on VAR model it also violate sub-additivity rule and it is a disadvantage of SPAN system.
Even though with this disadvantage SPAN system is the one which is most widely in use to calculate margins across the globe.

As NSE doesn’t have own margin system it deploys SPAN system to calculate margins and hence it is asking for more margin in the above case.

One can check the margin required by entering his positions in to software called PC -SPAN provided by CME group.

In your case if you close your options the margin required or blocked will be calculated for only futures and will be 54,800.

Check this link to know about SPAN calculations in detail.

http://www.nseindia.com/products/content/derivatives/equities/nsccl_span.htm

https://ibkb.interactivebrokers.com/node/563

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