You cannot close a hedged position unless you have enough funds to cover the margin required for the position that will remain open after closing one leg.
When you hold a hedged position, you benefit from lower margin requirements because one position offsets or reduces the risk of the other. However, if you try to close one part of the hedge, the remaining position becomes unhedged, and the margin requirement increases.
Example
You hold Long Nifty Futures + Long Nifty Put (PE). Your overall margin requirement is lower because the put option reduces the risk of the futures position.
Margin requirements:
- Hedged margin required: ₹1,20,000
- Unhedged futures margin required: ₹1,80,000
- Funds available: ₹1,30,000
If you close the Nifty PE first, your Nifty Futures position will remain open but become unhedged and will require full margin (₹1,80,000). You cannot close the PE position unless you have enough funds to cover the full margin required for the remaining Futures position.
How to close a hedged position
You can close your hedged position using either of these methods:
- Add funds to your account: Add enough funds to cover the full margin required for the position that will remain open after the exit. Once you have enough funds, you can close either part of the hedge.
- Close the higher-margin position first: Close the position that would require a higher margin if left open by itself, and then close the other position. In the example above, close the Nifty Futures position first, and then close the Nifty PE.