How to efficiently square-off order-level hedge positions?
When managing hedged positions (such as Bull Put Spreads) in the options market, it's important to square off positions efficiently to avoid margin shortfalls and order rejections. Here’s a step-by-step process:
Key Steps to Square Off Hedge Positions:
- Close the Sell Order First
When squaring off a hedged position, always close the Sell order (short position) first, before closing the Buy order.
This is essential because the Sell order often has a higher margin requirement, and closing it first ensures that the required margin is available for the remaining position. - Example: Bull Put SpreadYou have a Bull Put Spread:
- Long on an Out-of-the-Money (OTM) Put Option at 14950 (Buy order)
- Short on an In-the-Money (ITM) Put Option at 15200 (Sell order)
The15200 Put has a higher margin requirement.If you try to close the long 14950 Put first, there might be an insufficient margin to cover the short 15200 Put, leading to a potential order rejection. - Closing the Short Position First
Always close the short position (15200 Put) first. Once the higher-margin leg is closed, the remaining position (the long 14950 Put) will have adequate margin available for a smooth exit.
Benefits of this Approach:
- Prevents Order Rejection: Closing the higher-margin position first ensures there is enough margin available for the remaining position.
- Reduces Risk: By eliminating the higher-risk leg (the short position), you lower your overall exposure.
Additional Notes:
- Margin Calculation: The margin shown in the image does not include the Buy margin. Make sure to add the Buy margin to the total margin shown for an accurate calculation.
- Exchange Flexibility: This approach is not specific to any particular exchange but is a standard practice for maintaining margin efficiency and preventing disruptions in hedged positions.
What if...
| Scenario | Outcome |
|---|---|
| You try to close the long position first | There might not be enough margin to support the short position, leading to a rejection |
| You close the short position first | The position is squared off successfully with sufficient margin for the remaining position |
| You fail to square off on time | FYERS’ risk team may square off the position on your behalf to avoid margin shortfalls or penalties |
Last updated: 27 Jun 2025
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