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Exchanges use Standard Portfolio Analysis of Risk (SPAN) to calculate risk and margins for F&O portfolios. SPAN margin is monitored and collected when an order is placed, and it is updated by the exchanges throughout the day. SPAN margin is critical for people who act as options and futures writers in the equity market. The writers require a considerable margin in order for their losses to be covered. The SPAN system calculates the one-day move based on the worst-case scenario, and as a result, the margin is set for each and every position. SPAN calculates the maximum possible loss for a portfolio based on the price and volatility of the underlying security, as well as several other variables. SPAN margins differ from security to security depending on the type of risk that must be accepted along with the security.
Yes, the SPAN margins are revised six times per day: once at the start of the day, four times during market hours, and once at the end. The greater the volatility, the greater the margins.
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Because SPAN / Initial margin is calculated at the portfolio level, if several positions are internally hedged, the overall margin charged will be LESS than the sum of the margins of each position.
When a position is closed or squared off, the margin requirement usually decreases. But if one side of a hedged position is squared off completely or partially, the Margin requirement for existing positions / Open Orders may increase.
The entries on your ledger are the result of you failing to maintain sufficient margins in your account for your positions.
• No penalty is imposed if the margins available in the account exceed the margins required by the Exchange.
• If the margins available in the account fall short of the margins required by the Exchange, the Exchange imposes a penalty.
When you buy options to hedge your trade, the margin required for selling options or trading futures changes. If you try to execute your futures or sell options trade before purchasing your hedge, your account should have the full margin available.
The margin for F&O trades may be grown: If you have open in-the-money options positions four days before expiry
- Q. What is SPAN Margin?
- Q. Is the SPAN / Initial Margin requirement subject to change during the day?
- Q. Is the SPAN margin applicable across all segments?
- Q. Why is it that the SPAN margin for each F&O position does not sum the final margin charged for that underlying?
- Q. Why has the margin requirement risen despite the fact that I have squared up a few positions?
- Q. I noticed a margin penalty entry on my ledger. Why was I charged?
- Q. Why can't I enter a hedged position despite having the necessary funds?
- Q. Why is a higher-than-usual margin being blocked for my F&O trades nearing expiry?