Margin in F&O: Initial Margin, SPAN, Exposure & Margin Calls

Short answer: Margin is the good-faith capital you deposit to open and hold a futures or short-options position — a fraction of the contract's full value. It's made up of SPAN (risk-based) margin plus an exposure margin. If losses erode it, you get a margin call to top up; ignore it and the position is squared off.

The components

• SPAN margin — calculated by the exchange's risk model based on worst-case one-day moves of your portfolio.
• Exposure margin — an additional buffer on top of SPAN.
• Initial margin = SPAN + exposure — what you need to open the position.
• Maintenance — you must keep enough balance as the position is marked to market.

What is a margin call?

If the market moves against you and your balance falls below the requirement, the broker issues a margin call — add funds or reduce the position. If you don't, the broker can square off (forcibly close) your position to protect against further loss.

Margin benefit: why hedging is cheaper

A naked short option requires heavy margin because its risk is open-ended. Add a protective long option (a spread, iron condor or iron fly) and the exchange grants margin benefit — the defined risk means far less margin. Hedged structures are capital-efficient as well as safer.

Practical tips

• Don't deploy all your margin — keep a buffer for mark-to-market swings and margin calls.
• Size by risk, not by available margin. See position sizing.
• Use defined-risk structures to lower margin and cap loss.
• Remember tighter peak-margin rules verify margin intraday.

FAQ

Why did my required margin go up intraday? SPAN margin rises with volatility and as expiry approaches. Peak-margin checks can also catch shortfalls during the day.

Does buying options need margin? No — buying options costs only the premium. Selling options and trading futures require margin.

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