How is the margin for buying and selling options determined in the stock market?
In the stock market, the margin requirement for buying and selling options varies based on whether you are the buyer or the seller, due to the different levels of risk involved.
Margin for Buying Options (Calls or Puts)
When buying an option (either a call or a put), the margin required is simply the premium multiplied by the total quantity of options contracts you are buying.
Formula:
Margin for buying options = Premium × Total Quantity
Example:
- Mr. Das buys a Nifty50 Call option at a ₹90 premium for 50 shares.
- The margin requirement for his purchase is:
₹90 (premium) × 50 (shares) = ₹4500 (approx.).
Margin for Selling Options
The seller of an option is exposed to a higher level of risk, as they must fulfill the obligation to buy (for a call) or sell (for a put) the underlying asset if the buyer exercises the option.
As a result, the margin requirement for option sellers is significantly higher, and it is determined by the underlying asset's volatility, among other factors.
Example:
- Mr. Das sells the same Nifty50 call option for ₹90 premium with 50 shares.
- The margin required for selling is ₹1,18,450 (approx.) for the same 50 shares.
What if...
| Scenario | Outcome |
|---|---|
| You buy an option | Margin is equal to the option's premium × quantity |
| You sell an option | Margin is much higher due to increased risk and volatility |
| You sell an option without sufficient margin | The order will be rejected or a margin call will be issued |
Last updated: 27 Jun 2025
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