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SPAN & Exposure Margin

intermediate7 min read

How your derivatives margin is actually computed, and why it changes with volatility.

To hold futures or sell optionsThe right, not the obligation, to buy or sell at a set price., you must post marginThe deposit required to hold a leveraged position. — and in India it’s computed by a system called SPAN, plus an extra exposure marginThe deposit required to hold a leveraged position.. Understanding how it’s calculated explains why your margin requirement can suddenly jump even when you haven’t changed your position.

The key insight: **marginThe deposit required to hold a leveraged position. is risk-based, not fixed — so it rises exactly when markets get scary.* SPAN (Standardised Portfolio Analysis of Risk) simulates how your position would lose under a range of worst-case* price and volatilityThe size of price swings — not their direction. scenarios, and charges marginThe deposit required to hold a leveraged position. to cover the biggest plausible loss; exposure margin is an additional buffer on top. Because SPAN’s scenarios get more violent when volatilityThe size of price swings — not their direction. spikes, your required margin increases in turbulent markets — sometimes sharply, on a position you already hold. This is the cruel timing that catches optionThe right, not the obligation, to buy or sell at a set price. sellers: a volatile, falling market both hurts your position AND raises your margin, potentially forcing you to add cash or be squared off at the worst moment. Always keep a margin buffer, because the requirement is a moving target that grows precisely when you can least afford it.
ExampleYou sell a NiftyA basket of stocks tracked together to represent a market. optionThe right, not the obligation, to buy or sell at a set price. and post the required SPAN + exposure marginThe deposit required to hold a leveraged position.. VolatilityThe size of price swings — not their direction. spikes during a sell-off; SPAN’s worst-case scenarios worsen, and your required marginThe deposit required to hold a leveraged position. jumps 30–40% overnight. If you’re running near the limit, you face a margin callThe right, not the obligation, to buy or sell at a set price. — forced to add funds or close the position into the very volatilityThe size of price swings — not their direction. that caused it.
Key takeawayFutures/optionThe right, not the obligation, to buy or sell at a set price.-selling marginThe deposit required to hold a leveraged position. is computed by SPAN (worst-case scenario loss) + exposure marginThe deposit required to hold a leveraged position. — it’s risk-based, so it *rises when volatilityThe size of price swings — not their direction. spikes*, even on an unchanged position. Buyers pay only premium; sellers must post and maintain margin. Keep a buffer for the inevitable jumps.
FAQs
Why do option buyers not need margin but sellers do?

A buyer’s maximum loss is fixed and pre-paid — the premium — so there’s nothing more to cover. A seller’s potential loss is large/open-ended, so the exchange demands margin to ensure they can meet it, and recalculates that margin as risk (volatility) changes. This asymmetry is another reason selling options carries heavier obligations than buying.