Comment on Zerodha F&O margin Calculator

Krishnamurthy B. commented on 24 Apr 2015, 05:48 PM

There seems to be a flaw in the calculation of Margin requirements on a special case of Spread Put Option sales…
Consider that I Short Sell (Write) 100 NIFTY May-2015 Put Options @ Strike Price 8500, and simultaneously Buy 100 NIFTY May-2015 Put Options @ Strike Price 8800.
I understand that I have to pay the difference in premium between the bought Puts and sold Puts (because the sold 8500 Put is cheaper), but the combination spread position has no further Risk of loss as my Long Puts will always have higher value than my Short Puts. So, there should be no need for a further Margin in this special case (beyond the premium difference paid up front)!!
Why then is the SPAN Margin Calculator asking for a total Margin of Rs. 17000+ for this case – almost the same Margin as for the reverse case of Short Sell 100 Puts @8800 and Buy 100 Puts @8500 (where a risk exposure of Rs. 30,000 exists) ?
Is this a case that is simply not handled correctly in the SPAN calculator’s code, or is there some crazy logic to this ?
(BTW, don’t ask how one will make money selling 8500 Puts and buying 8800 Puts… It makes sense when premium diff between the Puts is << 300 and one feels that NIFTY is sure to close below 8500… but it works only if the Margin requirement for the spread is 0 or very low…)
Thanks. Krish.

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