Comment on Basics on Options Shorting/Writing

Guc Rol commented on 02 Jul 2014, 04:38 PM

Hi Nithin,

Just tried out your suggestion, but the math does not add up. Suppose I get into a bear call spread on Nifty, as follows:

* Sell 1 Lot NIFTY14JUL8100CE
* Buy 1 Lot NIFTY14JUL8200CE

As per the SPAN calculator, the margin requirements are as follows:

SPAN margin – Rs: 11,883
Exposure margin – Rs: 11,588
Premium receivable – Rs: 383
Total margin – Rs: 23,470
Margin benefit – Rs: 503

The total margin required is still Rs. 23,470 which is only Rs. 503 less than selling a naked 8100 Call. The maximum loss on this spread is only Rs. 4,617 (spread risk) + Rs. 383 (premium) = Rs. 5000, which should be the margin requirement if SPAN minimum calculations are considered. The risk is limited, and so should the margin.

The difference between the return on capital is almost 5x. Why is the margin benefit so little? Is it possible to enable SPAN minimum requirements on individual trading accounts?

Thanks.

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