An additional margin is required for selling index options, particularly due to the introduction of an additional 2% Extreme Loss Margin (ELM) on expiry days, effective from 20th November 2024. This additional margin applies to all short (sold) index option contracts, whether the position is held intraday or overnight, and even if the position is hedged. The purpose of this extra margin is to mitigate higher volatility typically observed on expiry days and to reduce counterparty risk by providing a buffer against sudden price fluctuations.

Here's how the additional margin is calculated:

For example, if a trader is shorting the Nifty 24000 Call Option (CE) on its expiry day, the additional 2% ELM is applied to the strike price.

• Additional margin per lot = 2% × Strike price × Lot size.
• In this case, the strike price is 24,000, and the lot size for Nifty options is 75.

So, the calculation is as follows:

Additional margin = (2 / 100) × 24000 × 75 = ₹36,000.

This means that an additional ₹36,000 will be blocked in the trader’s account as part of the margin requirement for this position on the expiry day.

Key Takeaways:

• The 2% ELM is applicable regardless of whether the position is intraday or overnight.
• Even hedged positions are subject to this extra margin.
• Traders should ensure that sufficient funds are available in their account, especially when trading index options on expiry days, to avoid margin penalties or position closure.

For updated margin requirements, traders can check the margin in the order window before placing a trade or use Navia’s margin calculator to factor in the additional 2% ELM for expiry day trades.