How Is Margin for F&O Calculated?

Buying Options

When you buy an option, the margin required is the premium amount you pay. If the contract is close to physical settlement, an additional delivery margin may apply.

Selling Options and Trading Futures

Selling options or trading futures requires a larger margin. The calculation includes SPAN margin plus exposure margin, along with any delivery margin charged during physical settlement and any additional margin levied by the exchange.

Hedge Margin Benefit

If you hold offsetting positions (for example, a buy and a sell on different strikes), you may receive a hedge margin benefit as per the SPAN calculation mandated by the exchange. This reduces your total margin requirement.

Additional Margin

Punch may apply extra margin on top of what the exchange requires, at its discretion, to manage risk during volatile market conditions.

Quick Example

To buy an option, you need enough funds to cover the premium. The formula is: quantity multiplied by the premium price per unit. For example, if one lot is 50 units and the premium is 100 per unit, you need 5,000.

On top of the margin or premium, you will also need to cover regulatory charges and brokerage upfront. These are deducted at the time of order execution.