SPAN Margin Calculator!

If a trader initiates a strategy with certain hedged positions and thereby reduces the overall portfolio risk due to the hedge, then in such cases, the margin levied for the portfolio is lower than what would have been the margin as a simple sum of all standalone positions. Simply put, spread benefit is the benefit of lower margins due to reduction of risk at a portfolio level.

The margins for positions initiated by traders have to be collected up front by the broker and in turn paid to the exchanges clearing corporation.

All margins including span margin can be paid by customers using a combination of cash and approved securities. For the complete list of approved securities and their corresponding haircut, please check SAMCO’s StockPlus product.

In several hedged strategies, the payoff is such that the loss is limited and, in such cases, if full margins are charged then there would be excess levy of margins. To solve for this, for hedged positions, exchanges grant spread benefit and reduce the margins required. For eg. If a customer initiates a call spread strategy where he’s bought Call of Strike price 100 and sold call of Strike price 110, in such a case, there is no portfolio risk for the client and therefore spread benefit is given and the margin for such a hedged portfolio is significantly lower.

The single biggest factor impacting margins is volatility. When there are large swings in prices, the SPAN margins are revised upwards and once volatility subsides, margins gradually reduce back to floor levels.

For NSE derivatives - Volatility is considered at 0.995 λ ; Volatility scan is considered as 25% of volatility subject to minimum of 4% (for index derivatives) and 10% (for stock derivatives) ; ELM is considered at 2% (for index derivatives) and 3.5% (for stock derivatives)