Mechanics · Lesson 04 of 4 · Concept
Margin and SPAN
Buying an option requires only the premium. Writing one requires margin, computed by the exchange’s SPAN system from a portfolio’s risk across a range of price and volatility scenarios, plus an exposure margin on top. It moves intraday as volatility changes.
NSE SPAN margining framework for equity derivatives
Why a writer posts anything at all
A buyer’s maximum loss is the premium, and it has already been paid, so there is nothing left to secure. A writer’s loss is open-ended beyond the breakeven, which is a commitment the exchange has to collateralise.
SPAN computes that collateral by revaluing the whole portfolio across a grid of scenarios — the underlying up and down by various amounts, volatility up and down — and taking the worst outcome. An exposure margin is added on top of the result.
Because it is computed on the portfolio rather than on each leg, structures that hedge themselves attract materially less margin than the sum of their parts. A spread requires less than a naked written option at the same strike, and the difference is the bought leg being recognised.
It is not a fixed number
The requirement is recomputed through the session. A rise in volatility raises it on every written position simultaneously, which is the mechanism behind a margin call arriving on a day the underlying has not moved much at all.
Exchanges also raise margins ahead of events and through expiry week on positions that can go to physical delivery, and brokers apply their own requirements above the exchange minimum. Two accounts holding an identical position can face different numbers.
No figures are quoted on this page for that reason. SPAN parameters are updated by the exchange several times a day and any number written here would be stale before it was read — the exchange’s own calculator and your broker’s margin statement are the authorities.
A margin figure is what must be posted to hold a position, not what can be lost on it. The written straddle in the previous lesson required margin at the open and finished ₹21.85 down; neither number is derivable from the other.
Common questions
Why do you need margin to sell options but not to buy them?
A buyer’s maximum loss is the premium already paid, so nothing further needs securing. A writer’s loss is open-ended beyond the breakeven, so the exchange requires collateral against it.
What is SPAN margin?
A portfolio-based margin system that revalues positions across a grid of price and volatility scenarios and requires collateral against the worst outcome, with an exposure margin added. Because it works on the portfolio, hedged structures require less than their individual legs would.
Why did my margin requirement increase without the market moving?
SPAN parameters include volatility. A rise in implied volatility raises the requirement on written positions even when the underlying is unchanged, and exchanges also raise margins ahead of events and through expiry week.
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How these figures are produced
Every price on these pages was traded on the exchange and is read from our own option-chain capture, which records the NIFTY and SENSEX chains once a minute through the session. Each page names the session its figures come from.
Figures that a model produced rather than the market — the Greeks, implied volatility — are labelled as model outputs wherever they appear, and never presented beside traded prices without saying which is which. The pricing is checked against published reference values on every change.
Where our own data cannot support a claim, the page says so instead of generalising. MarketCue is not a registered investment adviser, research analyst or broker under SEBI regulations.