Comment on Zerodha - Margin Policies

vinayak commented on 13 Oct 2014, 12:57 AM

Dear Nithin

let’s say I trade in options of two different companies A and B (e.g. TCS and INFY) in the following manner:

For the sake of simplicity let’s say both A and B today trade at Rs.500 each, lot size is 1000 shares.

At the beginning of the month:
I sell 10 ATM CE contracts of A for a premium of Rs. 20/option = receipt of Rs. 2Lacs in premium and margin blocked (total, SPAN + initial) is Rs. 10lacs
I buy (at the same time as above) 10 ATM CE contracts of B for a premium of Rs. 20/options = I pay net premium of Rs. 2lacs. Since I’m long CE options here, there is no margin; also there is no margin benefit.

Now let’s say I hold the two for the till the middle of the month (say 15th) and the prices of stock for A and B are Rs. 110 and 112 respectively.

Clearly the margin that I paid initially for shorting CE options in A is completely eroded because of the increase in prices BUT at the same time I have made a lot more money in options for B. Also volatility for B prices is more.

My question is:

Would I get a margin call in the above scenario if I haven’t liquidated any of the two positions on 15th, or would my unrealized gains in B cover the risks on my short options in A (to some extent at least, if not to the fullest extent)?

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