Option margins in India are risk based. Buyers generally pay only the premium, while sellers post margins computed by the exchange portfolio risk model (SPAN or PRISM) plus exposure. When you hedge a short option with an offsetting long leg, the net risk drops and the required margin can reduce significantly.
Buy vs sell options
- Buying options (calls or puts): You pay premium × quantity up front. There is no additional SPAN or exposure margin for the long leg.
Selling options (writing calls or puts): You post risk margins made up of:
- SPAN or PRISM margin (portfolio risk based)
- Exposure margin (buffer over SPAN)
Margins can change with volatility, moneyness, time to expiry, and underlying moves.
Hedged positions and margin benefit
- Why margins drop with a hedge: A long option that caps the downside of a short option reduces worst case loss, so the model assigns a lower net margin.
- Execution sequence matters: Place the buy (hedge) leg first, then the short leg, or use Basket Orders so the system computes combined margin in one go.
- Near expiry nuances: Margin treatment for some spreads, especially calendar spreads, can change around expiry. Do not assume the benefit persists into the last trading day.
Worked illustration
Setup: Short NIFTY 22600 PE (ITM) + Long NIFTY 22500 PE (OTM)
- Unhedged short margin ≈ ₹70,149.92
- Hedged margin ≈ ₹14,995.92, split as SPAN ≈ ₹2,567.13 and Exposure ≈ ₹12,428.79
- Margin benefit ≈ ₹55,154
Important: The above excludes the buy leg cost (premium and any charges) for the 22500 PE. Add that to get the true total funds needed.
Notes
- Always check a live margin calculator for the exact contract and quantity.
- Use Basket Orders to preview combined margin before sending orders.
- Square off or roll positions proactively near expiry if margin benefits change or if you face delivery risk on stock options that finish ITM.
Execute the hedge leg first or use Basket Orders, and always verify combined margin and premium outlay with the margin calculator before placing orders.
What if...
| Scenario | Outcome |
|---|
| I place the short leg before the long hedge | Order may be rejected if full standalone short margin is not available. |
| I execute the hedge leg first | Margin benefit is applied immediately for the paired position. |
| I use Basket Orders | Platform applies combined margin for all legs and shows the impact up front. |
| I forget to include the buy leg premium | Total funds appear lower than required and the trade may fail for insufficient balance. |
Last updated: 04 Nov 2025