Margin on an Indian F&O position has two components. SPAN margin is the exchange's estimate of the worst loss your portfolio could take, produced by repricing every position across a grid of price and volatility scenarios and keeping the worst result. Exposure margin is a flat additional percentage charged on top as a buffer. The sum of the two is what actually blocks in your trading account.
SPAN is computed on the portfolio, not leg by leg. When one leg gains in the same scenario where another loses, the worst case for the combination is smaller than the sum of the individual worst cases, and the margin follows that arithmetic. Adding an offsetting leg can therefore lower your total margin rather than raise it. A short strangle costs materially less than two naked shorts priced separately, and a spread less again. Estimating a multi-leg position one leg at a time will overstate the requirement every time, sometimes by a wide margin.
A long option needs no margin at all. You pay the premium in full and that premium is the most you can lose, so there is nothing further to collateralise. Margin exists for written options and for futures, where the loss is open-ended. This is also why adding a protective long leg to a short position both caps the risk and reduces the margin: the exchange can see the cap.
An exchange-level estimate is the minimum, not the final figure. Brokers add their own cushion on top, and the exchange itself raises requirements for volatile scrips, for names in the F&O ban, and as expiry approaches. Intraday peak-margin rules can bite on a position that looked adequately funded at entry, because what is measured is the peak during the day rather than the balance at the close.
Before placing any multi-leg position, and before rolling one. The useful question is rarely whether you can afford a single trade; it is how much a hedge actually costs you in blocked capital once the portfolio effect is counted. Build the whole structure here, including the leg you were planning to skip, and the trade-off between protection and capital becomes a number rather than a guess.
SPAN margin is the exchange's estimate of the worst loss your whole portfolio could take, computed by repricing every position across a grid of price and volatility scenarios and taking the worst outcome. Exposure margin is an additional flat percentage charged on top as a buffer. What blocks in your account is the sum of the two.
Because SPAN is calculated on the portfolio rather than leg by leg. When one leg gains in the same scenario where another loses, the worst-case loss for the combination is smaller than the sum of the individual worst cases, and the margin follows that. A spread or a strangle therefore costs far less than the naked legs priced separately.
No. A long option is paid for in full as premium, and that premium is the most you can lose, so no margin is blocked against it. Margin applies to written options and to futures, where losses are open-ended. Adding a long leg to a short position can still reduce the margin on the position as a whole.
Brokers may add their own cushion above the exchange requirement, and the exchange itself raises margins for volatile or banned scrips and near expiry. Intraday peak-margin rules can also bite on a position that looked fine at entry. Treat any estimate as the exchange-level floor and confirm the final figure with your broker before placing the trade.
Analytics only. Not investment advice. Last updated .