MtM on Option Writing

#1
Hello Seniors,

I am new to option Writing and am confused. Need your help on some specific queries.

I understand, when shorting options, full future margin is blocked; but I wish to know if MtM is also chargeable on daily basis on option writing as it is applicable in buying/selling of futures.

I have talked to multiple brokers and everybody is giving a different answer. Some brokers are telling they apply MtM and some say they don't apply MtM to option writing.

Please clarify.
Regards,
Shiv
 
#2
Hello Seniors,

I am new to option Writing and am confused. Need your help on some specific queries.

I understand, when shorting options, full future margin is blocked; but I wish to know if MtM is also chargeable on daily basis on option writing as it is applicable in buying/selling of futures.

I have talked to multiple brokers and everybody is giving a different answer. Some brokers are telling they apply MtM and some say they don't apply MtM to option writing.

Please clarify.
Regards,
Shiv
Also 1 more clarification please

Is the broker supposed to credit the entire option premium to your account and then take the margin from there or is the premium kept in reserve with the broker and only credited after the option is squared up ?
 
#3
Hello Seniors,

I am new to option Writing and am confused. Need your help on some specific queries.

I understand, when shorting options, full future margin is blocked; but I wish to know if MtM is also chargeable on daily basis on option writing as it is applicable in buying/selling of futures.

I have talked to multiple brokers and everybody is giving a different answer. Some brokers are telling they apply MtM and some say they don't apply MtM to option writing.

Please clarify.
Regards,
Shiv
When you are shorting option, you get the premium deposited in your account.
Now If the option value goes up which means u start losing MtM should be on future value and not on Option value. (This I am not sure, will have to get confirmation on this.).
Now 1 point to remember is that You have already pocketed Premium which must be adjusted against MtM, Once you lose this premium also then only money should be deducted from your capital.

I might be wrong, clearing doubts will be welcome.
 

rkkarnani

Well-Known Member
#4
When you are shorting option, you get the premium deposited in your account.
Now If the option value goes up which means u start losing MtM should be on future value and not on Option value. (This I am not sure, will have to get confirmation on this.).
Now 1 point to remember is that You have already pocketed Premium which must be adjusted against MtM, Once you lose this premium also then only money should be deducted from your capital.

I might be wrong, clearing doubts will be welcome.
MtM is on Option value.
 
#5
SPAN Calculator

SPAN calculator is a unique tool designed to help you figure out margin requirements even before you take a trade. What is unique about this is that the calculator will show you the margin benefit for taking multiple positions at the same time. The exchange gives you a margin benefit when there are positions which are hedging others and we are amongst the first few brokers to offer a tool on a trading platform which tells you this before taking a trade. Find following an explanation on how to use the tool:

STEP 1: Ensure that you are registered onto NEST PLUS.

STEP 2: While logging into the platform, ensure that you have ticked on Launch Plus. Check out the pic below:



STEP2: Go to the link Nest Auto Plugins (Ctrl + Shift + P). You can also do this by following the steps on the picture below:



Step 3: To start the SPAN Calculator, choose it from the dropdown and then click start plugin as mentioned in the image below:



Step 4: You might get an error message like you see below, press OK to continue:



Find following an example of using the SPAN calculator. As we all know margin required to buy 1 lot of Nifty futures is around 29000 (when Nifty is around 5700), what happens if you buy 1 lot of 5700 put along with buying Nifty futures? You buying 5700 put reduces the risk on the Nifty futures and hence the margin blocked should reduce. Consider that Nifty futures presently is at 5706 and nifty 5700 put is at around Rs 22. Margin for nifty futures: 29,000 / Premium Requied to buy 5700 put : Rs 1,100... Together the margin required should be 30,100, but since the position is hedged, the margin requirement should be?? Look at the illustration given below:

Step 5: After the above pic, you get the following window. Add the contract and click "Add to List". In the net quantity, add 50 (1 lot long) and add -50 (if you are shorting). In the above example, you are buying 1 lot futures and 1 lot puts, so add net qty as 50 in both the cases. See the pic below:



Step 6: After adding the first contract, add the second contract that you wish to add, see pic below:



Step 7: Click on the box next to the position and say get SPAN. See the total margin required:





As you will see in the example, the margin required reduces by quite a bit because your position is hedged.

Similarly find the following example where you are shorting Nifty futures and buying 5700 calls.

1. Add (-50) of Nifty October futures as shown below:



2. Add 50 (1 lot long) of 5700 calls as shown below:


3. Click on both positions and click get SPAN. See the actual margin required to take this trade:



Similarly you can see the margin requirements for trading commodity futures. Please note that when adding a contract for commodity in the net quantity column if you want to add 1 lot of silver don't mention 1 but mention 30( 1 lot is 30kgs of silver) or multiples of 30. So the net quantity can be multiples of, for Gold(1, as 1kg), Silver( 30, as 30kg), Lead(5, as 5MT), Lead mini(1, as 1MT), Zinc(5, as 5MT) so on..

Thanks to : zerodha
 

prabhsingh

Well-Known Member
#6
Santhosh,

What about people who are not registered onto NEST PLUS.Is there any online version or excel sheet available of SPAM Calculator?
 

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