New margin requirement for popular futures and options strategies
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New margin requirement for popular futures and options strategies
- 1. NEW MARGIN REQUIREMENT FOR POPULAR FUTURES AND OPTIONS STRATEGIES New Margin Trading Framework - June 2020 www.optionhydra.com
- 2. www.optionhydra.com What is the New Margin Framework? • SEBI review of margin framework is expected to bring down margin requirements for traders in the futures and options (F&O) segment • New Margins are likely to be effective from 1st June 2020 onwards • Margins on Hedged Futures and Options Strategies where the trading risk is limited are likely to be reduced by 60-75%
- 3. www.optionhydra.com Naked Nifty Futures Margin • The margin required for unhedged or naked FNO positions is likely to go up slightly. • Current Margin for Naked Futures 16.7% • Revised New Margin for Naked Futures 18.5%
- 4. www.optionhydra.comF&O Margin Components – SEBI circular mandates brokers to collect the complete SPAN + Exposure margin to carry forward Futures and Options positions to the next day Span Margin is the minimum requisite margins blocked for futures and option writing positions as per the exchange's mandate Exposure Margin is the margin blocked over and above the SPAN to cushion for any MTM losses Total Margin = Span Margin + Exposure Margin – Spread Benefit Margin Benefit is the margin offset passed on to the trader because of the low risk in the option strategy Spread Benefit is the margin offset passed on to the trader because of the low risk arbitrage trades
- 5. www.optionhydra.com Nifty Futures Long/Short Product • June Futures @ 9482 Quantity • Buy 75 shares Total Contract Value • Rs 7,11,150 Span • Rs 1,20,330 Exposure Margin • Rs 14,241 Total Margin • Rs 1,34,571 Product • June Futures @ 9482 Quantity • Sell 75 shares Total Contract Value • Rs 7,11,150 Span • Rs 1,21,350 Exposure Margin • Rs 14,249 Total Margin • Rs 1,35,599
- 6. www.optionhydra.com Hedged Futures with ATM Options Product • June Futures @ 9482 • June 9600PE Quantity • Buy 75 shares • Buy 75 shares Margin Benefit • Rs 1,16,362 Span • Rs 3,969 Exposure Margin • Rs 14,241 Total Margin • Rs 18,210 Product • June Futures @ 9482 • June 9600CE Quantity • Sell 75 shares Margin Benefit • Rs 1,09,147 Span • Rs 10,797 Exposure Margin • Rs 14,241 Total Margin • Rs 25,038
- 7. www.optionhydra.com Put-Call Parity Arbitrage Product • June Futures @ 9482 • June 9600CE • June 9600PE Quantity • Buy 75 shares • Sell 75 shares • Buy 75 shares Margin Benefit • 2,29,085 Span • Rs 3,969 Exposure Margin • Rs 28,612 Total Margin • Rs 32,580
- 8. www.optionhydra.com Nifty June-July Futures Spread Product • June Futures @ 9482 • July Futures @9483 Quantity • Buy 75 shares • Sell 75 shares Margin Benefit • Rs 2,51,476 Spread Benefit • Rs 23,727 Span • Rs 13,089 Exposure Margin • Rs 28,470 Total Margin • 17,832
- 9. www.optionhydra.com Nifty ATM CE/PE Options Selling (Naked) Product • Jun Options Strike • Sell 9600CE Quantity • 75 Shares Span Margin • Rs 1,12,724 Exposure Margin • Rs 14,370 Premium Receivable • Rs 16,935 Total Margin • 1,27,094 Product • Jun Options Strike • Sell 9600PE Quantity • 75 Shares Span Margin • Rs 1,18,264 Exposure Margin • Rs 14,370 Premium Receivable • Rs 24,908 Total Margin • 1,32,634
- 10. www.optionhydra.com Nifty OTM CE/PE Options Selling (Naked) Product • Jun Options Strike • Sell 10000 CE Quantity • 75 Shares Span Margin • Rs 88,086 Exposure Margin • Rs 14,370 Premium Receivable • Rs 6,000 Total Margin • 1,02,456 Product • Jun Options Strike • Sell 9200PE Quantity • 75 Shares Span Margin • Rs 91,738 Exposure Margin • Rs 14,370 Premium Receivable • Rs 13,133 Total Margin • 1,06,108
- 11. www.optionhydra.com Nifty ITM CE/PE Options Selling (Naked) Product • Jun Options Strike • Sell 9000 CE Quantity • 75 Shares Span Margin • Rs1,56,453 Exposure Margin • Rs 14,370 Premium Receivable • Rs 46,099 Total Margin • 1,70,823 Product • Jun Options Strike • Sell 9200PE Quantity • 75 Shares Span Margin • Rs 1,48,215 Exposure Margin • Rs 14,370 Premium Receivable • Rs 43,905 Total Margin • 1,62,585
- 12. www.optionhydra.com Short Straddles (Credit Strategy) Product • Jun Options Strike • Sell 9600CE • Sell 9600PE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 1,12,724 Span Margin • Rs 1,18,264 Exposure Margin • Rs 28,741 Premium Recievable • Rs 41,843 Total Margin • 1,47,004
- 13. www.optionhydra.com Short Strangles (Credit Strategy) Product • Jun Options Strike • Sell 10000CE • Sell 9200PE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 88,086 Span Margin • Rs 91,738 Exposure Margin • Rs 28,741 Premium Recievable • Rs 19,133 Total Margin • Rs 1,20,478
- 14. www.optionhydra.com Bear Call Spread (Credit Strategy) Product • Jun Options Strike • Buy 9600CE • Sell 10000CE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 84,984 Span Margin • Rs 27,740 Exposure Margin • Rs 14,370 Premium Receivable • Rs 10,935 Total Margin • Rs 42,110 Bull Put Spread (Credit Strategy) Product • Jun Options Strike • Buy 9200PE • Sell 960PE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 89,796 Span Margin • Rs 28,468 Exposure Margin • Rs 14,370 Premium Receivable • Rs 11,775 Total Margin • Rs 42,838
- 15. www.optionhydra.com Call Calendar Spread (Debit Strategy) Product • Jun Options • Jul Options Strike • Sell 9600CE • Buy 9600CE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 1,03,930 Span Margin • Rs 8,794 Exposure Margin • Rs 14,370 Total Margin • Rs 23,164 Call Diagonal Spread (Debit Strategy) Product • Jun Options • Jul Options Strike • Sell 9800CE • Buy 9600CE Quantity • 75 Shares • 75 Shares Margin Benefit • Rs 94,135 Span Margin • Rs 5,615 Exposure Margin • Rs 14,370 Total Margin • Rs 19,986
- 16. www.optionhydra.com Long Butterfly (Credit Strategy) Product • Jun Options Strike •Sell 9600CE •Sell 9600PE •Long 9500PE •Long 9700CE Quantity • 75 Shares • 75 Shares • 75 Shares • 75 Shares Margin Benefit • Rs 2,23,550 Span Margin • Rs 7,438 Exposure Margin • Rs 28,741 Premium Receivable • Rs 7,058 Total Margin • Rs 36,178 Long Iron Condor (Credit Strategy) Product • Jun Options Strike •Sell 9500PE •Sell 9700PE •Long 9400PE •Long 9800CE Quantity • 75 Shares • 75 Shares • 75 Shares • 75 Shares Margin Benefit • Rs 2,10,253 Span Margin • Rs 7,144 Exposure Margin • Rs 28,741 Premium Receivable • Rs 5,959 Total Margin • Rs 35,885
- 17. www.optionhydra.com Major Highlights Overall Reduction in Margin on Spread Trades & Hedged Future Trades, Straddles & Strangles The ROI of hedged strategies will go up. Most likely a good opportunity for Naked Sellers to hedge their risk with reduced margins. And Naked Buyers can adopt better trading strategies by hedging. The margin required for naked positions will be higher and tied to the volatility in the market. If volatility increases margins will increase and if the volatility decreases the volatility will be reducing.
- 18. www.optionhydra.com Major Highlights Price Scan Range (PSR) which is used to assess the FNO margin for worst-case scenario loss has been scaled up to 6σ (sigma) from earlier 3.5σ, which will make the margin requirement somewhat dynamic as when markets volatility picks up, the margin required for naked positions will be higher and will be reduced as the volatility in the market subside. In derivatives, the large notional margins getting applied due to option minimum margin and Extreme Loss Margin (ELM) being which accounts for the high margin requirement. As the new margin framework came into existence, the ELM is approximately halved which reduce the notional component of the margin.
- 19. OPTION HYDRAWWW.OPTIONHYDRA.COM 90 hours of Online Mentorship Program for Option Traders who want to take view using Market Profile