How to determine the margin for hedge positions?

When dealing with hedge positions, understanding the margin requirements is crucial for efficient trade execution and risk management. Here's a detailed guide on how to determine the margin for hedge positions:

Suppose you have selected the following options for a hedge position:

1. Sell (Short) ITM Put Option: NIFTY 22600 PE
2. Buy (Long) OTM Put Option: NIFTY 22500 PE
   

The margin required for this strategy consists of span margin and exposure margin. The span margin is the amount required to cover potential losses based on price changes, while the exposure margin covers additional risks.

The margin required for the 22600 PE is ₹70,149.92. However, by hedging with the 22500 PE buy, the total amount required to short the 22600 PE is reduced to just ₹14,995.92.

Note: The margin for the hedge position shown in the image does not include the buy margin. Please add the buy margin to the margin shown in the image to get the accurate total margin requirement.

To avoid order rejections due to insufficient margin, always execute the buy order first. Additionally, our Basket Order facility will help you determine the margin required seamlessly, ensuring efficient trade execution. To know more, kindly refer to this article.

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