Options M2M and P&L calculation

11.1 – Margins for Options trading

When trading options, you’ll hear a term called “margin.” It’s nothing but the money required to buy or sell an option. Margin requirements are different for futures, call options and put options. We will learn more in this video.

We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.

Key takeaways from this chapter

1. Neither option buying nor selling entails mark to market; M2M is only for futures
2. Margins charged for option selling is a function of both price movement and volatility
3. As volatility increases, so does the option premium
4. Option positions closed before expiry can be generalized to the Difference between buying and selling price of premium multiplied by lot size
5. The option positions held to expiry are physically settled