New margin framework for F&O kicks in; Check out the new margin requirements

This has been a long time coming, but NSE is finally going live on Monday, June 1, 2020, with the new margin framework for future and options trades. Users can use our F&O margin calculator. You can enter F&O strategies and see the new margin requirement.

Check this below example of margin required for a bear call spread.

The margin required for a bear call spread is now just Rs. 21,800 with margin benefit of Rs 1.05 lakh, almost 60% lower margins than what was required earlier.

As is evident in the above example, the margin required for positions that hedge each other where the risk is capped drops dramatically. The potential yields for such low-risk strategies will go up significantly. For strategies like Iron Condor, the margin drops by a whopping 70%. With this, we are most likely going to see a new breed of risk-averse traders in the market, which should significantly increase the open interest, improve market depth, and lower impact cost for traders.

Price scan range which is used to determine F&O margins is now changed to 6 sigma from 3.5 sigma. What this means is that when markets are volatile, the margin required for naked positions will be higher than what it was before. This means that since we have had maybe the highest volatility after a very long time in the last three months due to COVID-19, the margin required for naked positions is up by ~20%. But this will reduce as the volatility in the market drops. The higher PSR means that there won’t be a sudden spike in increase or decrease of margin going forward, it will be gradual.

Note: If you held open positions at the end of day Friday, May 29, your margin requirement will change on June 1st on Kite. If you have any naked positions, the margin required will go up and you’d be required to add funds to maintain this additional margin to avoid positions being squared off. If you have hedged positions, the margin will reduce.

Check this presentation from NSE for more information.

If you have any questions about the new margin requirements, please post them here.