Why are additional margins being blocked for an existing long option position?
Additional margins are blocked for the existing long option position if the moneyness of the contract turns from OTM to ITM. As per the physical settlement policy (WEB), all ITM positions require physical delivery margins to be maintained in the last week of expiry. The Exchange charges physical delivery margins as a percentage of applicable margins, i.e VaR + ELM + Adhoc margins of the underlying stock, which is levied from expiry minus 4 days for long ITM options in the following manner.
| Day (BOD-Beginning of the day) | Margins applicable |
| E-4 Day (Friday BOD) | 10% of VaR + ELM +Adhoc margins |
| E-3 Day (Monday BOD) | 25% of VaR + ELM +Adhoc margins |
| E-2 Day (Tuesday BOD) | 45% of VaR + ELM +Adhoc margins |
| E-1 Day (Wednesday BOD) | 25% of the contract value |
| Expiry day (Thursday BOD) | 50% of the contract value |
To learn more about VaR, ELM, and Adhoc margins, see What is Value at Risk (VAR), Extreme Loss Margin (ELM), and Adhoc margins?
Did you know? The change from OTM to ITM may happen quickly if there's volatility in the underlying stocks. Clients are advised to maintain sufficient margins.
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