Why is an additional margin required for selling index options?

According to regulations (WEB), starting 20th November, an additional 2% Extreme Loss Margin (ELM) will be levied on all short (sold) index option contracts on their expiry day. This margin will be charged regardless of whether the position is intraday or overnight, and it will also apply even if the position is hedged. This extra margin is being introduced to account for the higher volatility seen on expiry days. It helps reduce counterparty risk and protects against sudden price changes.  Therefore, ensure that sufficient funds are maintained in the Zerodha account.

Here’s how the additional ELM is calculated:

1. A trader is shorting Nifty 24000 CE, which is expiring today.
2. Since it is the expiry day, a 2% ELM is charged for this short position.
3. Additional margin (per lot) = 2% × Strike price × Lot size.
   = (2 / 100) × 24000 × 25.
   = ₹12,000.

An additional ₹12,000 per lot will be blocked in the trader's Zerodha account for this particular contract as part of the margin requirement.

Updated margin requirements can be checked on:

• Order window: Check the estimated margin requirement in the order window before placing the trade.
• Zerodha’s margin calculator: Use the margin calculator to calculate total margin requirements, including the additional 2% ELM for expiry day trades.