Why does Selling cost more? (Margin Explained)
Buying an option costs ₹5,000. Selling the same option costs ₹1,00,000. Why?
The Risk Asymmetry
Buyer Risk: Capped at ₹5,000. The broker doesn't worry about you losing more than you have.
Seller Risk: Theoretically Infinite. If Nifty jumps 10%, the seller could lose ₹5 Lakhs.
To protect the system, the Exchange (NSE) demands a Security Deposit called Margin. This ensures the seller can pay up if the trade goes wrong.
Concept of Hedging for Margin Benefit
You can reduce the margin requirement significantly by Hedging.
Example: Bear Call Spread
Trade A: Sell 22,000 CE (Risk: Unlimited). Margin: ~₹1 Lakh.
Trade B: Buy 22,200 CE (Protection). Cost: ₹20.
Net Effect: Your maximum loss is now capped at 200 points. The Exchange recognizes this safety and reduces margin to ~₹30,000.
Pro Tip: Never sell naked options overnight. Always buy a far OTM hedge to protect your capital from "Black Swan" events and reduce margin blocking.
*Disclaimer: NSE/BSE frequently revise Lot Sizes and Expiry Days (e.g., SEBI Circulars 2024/2025). Always check the latest circular on nseindia.com before trading.
Standard Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The content provided here is for educational purposes only and does not constitute financial or investment advice. AlgoStraddle Academy is not a SEBI registered investment advisor. Trading options involves high risk and capital can be lost.