Comment on Zerodha F&O margin Calculator

Nithin Kamath commented on 24 Apr 2015, 07:16 PM

Krishnamurthy, what the SPAN tool of ours calculates is what the exchanges calculate. How much margin to be blocked is actually stipulated by the exchange and not us.
Coming back to why charge when the risk is limited on short 8500 put when you are long 8800 put? Have answered it a few times before on this post. Exchanges have to also factor in what is called an execution risk. What if once you have taken this position, you decide to exit long 8800 puts first? Because if you do, then you will now have naked short 8500 puts with unlimited risk, maybe with not enough margin in your account. What if you intend to exit both, 8800 puts get filled because it was liquid, and 8500 put remains pending in the system? So when exchanges calculate margin, they have to factor in all that risk.
The only strategy which exchanges recognize is the calendar spread. So if you buy this month future, and sell next month or vice versa, margin is blocked only on one side.
Hopefully clarifies.

View the full comment thread »