The new margin requirements in futures and options segment are applicable from 1st of June 2020.
In the above table, we can see if we create any position which is unprotected attracts higher margin. For eg. Margin requirement for 1 Lot Nifty buy was Rs. 108316 in the old system and in the current scenario it has shot up to Rs. 134250 i.e 24% increase. Same way shorting a call or shorting a put will also require higher margin by approx 25%.
However, if we move on to option strategies or we protect our futures positions by hedging it with some options, we can substantially lower our margin requirement. Let’s look at few interesting option strategies.
Short Straddle: This strategy is created when the view on the market is range bound. Same strike price call and put needs to be sold of the same expiry. The margin requirement was Rs. 172261 in old scenario and now in the new scenario it has come down to Rs. 143472.
Iron Condor: This strategy is a risk defined one and it’s a four legged strategy usually setup based on the expectation of the expiry range. It’s a combination of Bear call spread and Bull Put spread. Margin requirement has fallen from Rs. 143472 to Rs. 42149 i.e 70% reduction in the margin.
Also strategies like buttery, Ironfly, Calendar spread, etc. have also seen major fall in the margin requirement.
The ROI will go up with this new margin framework. However, one needs to be careful in position sizing as less margin doesn't guarantee profit. So don't jump in and utilize your full margin in one go but deploy it systematically.
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