Let us simulate different situations and see the impact of margin simulation in all these situations. Let us also understand how to calculate initial margins for futures and types of margins in future contract with distinct futures margin examples.
Know everything about Margin for Options Trading and Settlement
Here is how to go about it. Buying Nifty near month Nov futures Nifty currently has a lot size of 75 units so the minimum lot value will be Rs. Let us check the margining below. The ELM margin is also known as the exposure margin.
However, if you want to pay lower margins, then you can opt for an intraday trade. This intraday has to strictly closed intraday and if the trader does not close the trade then the broker RMS will close the trade automatically around 3. If you want still more leverage, then you can opt for Cover Order.
Frequently Asked Questions (FAQs)
In a cover order, you put the stop loss as part of the order and in that case since your risk is limited still further, you get higher leverage. In the above instance, the trader can move from buying just 6 lots in normal order to buying 21 lots in the intraday order and right up to 62 lots in case of cover order.
Of course, while the Normal margins are fixed by the exchange, the amount of leverage to be given on intraday orders and on cover orders is something the broker has the discretion to decide. Bank Nifty currently has a lot size of 20 units so the minimum lot value will be Rs.
In the case of Bank Nifty, the leverage potential is huge since one can place a cover order and buy up to 94 lots with a margin of just Rs. To understand the impact of change in any factor it is as always important to keep other factors constant so we can understand the impact of change of that particular factor. Option delta represents the sensitivity of option price to small movements in the price of underlying asset. For instance, if a call option has a delta of 0. Similarly, when we say a put option has a delta of say Likewise, as an out-of-the-money option nears expiry its delta approaches 0.
Brokerage and Other Charges Involved
Delta is the most important of all the option greeks. Delta is usually expressed in percentage or decimal number. The legitimate values of delta are as follows:. Therefore put option delta is always negative while call options have positive delta.
At-the-money options have a delta of about 0. Gamma measures the sensitivity of option delta with respect to changes in the underlying prices.
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It is first level derivative of Delta. Option traders need to know this because option delta does not remain constant in reality and it changes as the underlying price changes. Therefore option traders need to worry about delta sensitivity and accordingly measure gamma in order to understand and estimate the risk they are exposed to while trading options. Deep in-the-money options and deep out-of-the-money options have relatively lower gamma. However, at-the-money options have higher gamma and trades need to be watchful when dealing with these options.
Vega also known as kappa or zeta measures the option price sensitivity to the changes in the underlying volatility. For example, if vega of an option is 1. Again Vega is not constant and it changes when there are large price movements in the underlying. Also, Vega decreases as the option gets closer to expiration date. Theta measures the change in the option value relative to the change in the time to maturity of the option.
Get Leverage
All other option parameters remaining constant, the option value will constantly erode with every passing day since the time value of the option diminishes as it approaches option expiration. This is also called as the time decay of option. Theta is always negative since if other things remaining same, option value declines as it gets closer to expiration due to diminishing time value. To understand option Theta with illustration, if an option has Theta value of Rho measures the sensitivity of option value with the changes in the risk-free interest rate.
This is positive for call options since higher the interests, the higher the call option premium and negative for put options since higher the interest the lower the put option premium.