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Why is the margin benefit for a hedged trade not being received?

If the hedged positions are not exited properly, the margin requirement increases as the margin benefit goes away with the exited positions. Due to this, there’s a peak margin shortfall in the account. To know more, see Can exiting one leg of a hedged position lead to a peak margin shortfall?

To avoid a peak margin shortfall, always exit the position with the highest margin blocked first. If the client continues to exit the position with low-risk or low-margin requirements in a hedged trade first, resulting in a shortfall, the following actions will be taken:

  1. Clients will not receive margin benefits for the hedged position.
  2. The margin required for entering into new derivative positions will increase by 3 times.

Example scenario

  • Exit the short option position first if the trade is hedged with the options position for margin benefit.

If NIFTY 18300 CE is bought and NIFTY 18200 CE is sold, the short position is to be exited first, i.e., NIFTY 18200 CE. Exiting the long position first will lead to a margin shortfall.

  • Exit the short position of futures first if it is hedged with options positions for margin benefit.

If NIFTY 18500 CE is bought and NIFTY futures are sold, exit the NIFTY futures position first. Exiting the options long positions first will lead to a margin shortfall.

  • Exit both futures contracts using a basket order if the trade is hedged with futures positions.
If NIFTY futures of different expiries are bought and sold for the margin benefit, exit both the positions using basket order to avoid margin shortfall. To learn more about basket orders, see How to place basket orders on Kite?