Buying an option needs only the premium. Selling (writing) one needs margin: money kept with your broker as a guarantee that you can cover losses. The rules come from SEBI and the clearing corporations, and brokers can add more on top. This guide explains the parts of the margin and the rules that apply in 2026.
Why sellers need margin
A seller receives a small premium but can lose many times that amount; for a sold call there is no fixed maximum loss. The notional value behind one Nifty lot is large: "at 25,000", one lot of 65 represents ₹16,25,000 (16.25 lakh) of index exposure. Margin exists so that the clearing corporation can be confident losses will be paid.
The two main parts
| Component | What it covers | How it is set |
|---|---|---|
| SPAN margin | The worst likely one-day loss of your whole portfolio | Computed by the clearing corporation by simulating price and volatility scenarios across your positions |
| Exposure margin (ELM) | Losses beyond the SPAN scenarios: extreme moves | A percentage of the notional value of the position, set by the exchange |
| Premium | For buyers: the full premium | Collected upfront from option buyers |
SPAN looks at the whole portfolio, which is why hedged positions such as spreads need much less margin than a naked sold option: the bought leg limits the scenario loss. Margin is recalculated through the day as prices and volatility change, so the same position can need more margin tomorrow than today.
Peak margin: fully upfront, all day
- Since 1 September 2021, the full margin must be available before a position is taken, including intraday positions. The old practice of brokers offering extra intraday leverage on F&O ended with this rule.
- The clearing corporations take at least four random snapshots of each client's margin requirement during the day. The highest requirement is compared with the margin the broker collected.
- A shortfall attracts a penalty on the broker, which brokers usually pass on to the client: 0.5% of the shortfall if it is under ₹1 lakh and under 10% of the required margin, 1% otherwise, with higher rates for repeated shortfalls.
Expiry day: extra 2% ELM
Under SEBI's October 2024 measures for index derivatives, an additional extreme loss margin of 2% of the notional value is charged on short index options expiring that day. It applies to short positions open at the start of expiry day and to short positions in expiring contracts opened during the day. It has applied since 20 November 2024. In the illustrative case above, 2% of ₹16,25,000 is an extra ₹32,500 per sold lot on expiry day.
The same set of measures removed the calendar spread margin benefit on expiry day from 1 February 2025: a position that offsets an expiring contract against a later expiry no longer gets reduced margin on the day the near leg expires. It also requires brokers to collect the full option premium upfront from buyers.
About these numbers
The index level is illustrative. The actual SPAN and exposure margin for a sold Nifty option depend on the strike, the time to expiry, volatility and your other positions, and change daily. Use your broker's margin calculator for the figure that applies to you.
Collateral and the 50% cash rule
You do not have to post all of the margin in cash. Shares, ETFs, government securities and some mutual fund units can be pledged as collateral through the depository's margin pledge system. Your shares stay in your demat account; the clearing corporation values them after a haircut (a safety discount that depends on the security) and counts the result towards margin.
- At least 50% of the margin for F&O positions must be in cash or cash equivalents. Cash equivalents include liquid and overnight funds, government securities and fixed deposits accepted by the broker; ordinary shares do not count as cash.
- The 50:50 requirement applies to positions carried overnight. If the cash part falls short, brokers charge interest on the shortfall, and some charge an extra fee per order; the details differ by broker.
- Pledged shares can lose value in a falling market at exactly the time the margin requirement rises, so a position can go into shortfall without any new trade.
Margin calls and square-off
If losses reduce your available margin below what your positions require, your broker will ask you to add funds. If you do not, the broker can square off positions, often at unfavourable prices and without waiting for you. This can happen during the day as margins are recalculated, not only at the close.
Stock options near expiry
Stock F&O contracts are physically settled, so brokers raise margins on in-the-money and near-the-money positions in the days before expiry to cover the possible delivery. Our guide on physical settlement explains the schedule.
Margin is not the maximum loss
Margin is a deposit sized for likely one-day losses. On a large gap, losses on a sold option can exceed the margin blocked, and you are liable for the difference.
Examples use illustrative values, not current market data. This is general education, not investment advice.