As per SEBI’s recent circular, the benefits of a calendar spread on expiry day will no longer be available for traders. What is a Calendar...
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As per SEBI’s recent circular, the benefits of a calendar spread on expiry day will no longer be available for traders.
What is a Calendar Spread?
A calendar spread is when you take two positions on the same asset but with different expiry dates. This helps reduce margin requirements because the positions hedge each other.
Here’s an example to understand this better:
Let's say you're trading NIFTY Options:
- You BUY 1 lot of 24000 NIFTY Call expiring in February (near-term contract)
- You SELL 1 lot of 25000 NIFTY Call expiring in March (far-term contract)
If you trade in these contracts separately, you would have to maintain a 100% margin for each contract. But since this is a hedged position (long in one contract, short in another), the Exchange provides a calendar spread margin benefit, meaning you only need to maintain a reduced margin.
What’s changing?
On the expiry day of one of your contracts, the Exchange will remove the margin benefit for that contract. This means you’ll need to maintain a 100% margin for the remaining contract.
How does this impact you?
On the expiry day of your near-term contract (e.g., February contract), the margin benefit will be removed. You’ll need to maintain the full margin for your remaining contract (e.g., March contract).
If you don’t have enough margin, your position may be squared off automatically.
Please ensure you check your margin requirements before the expiry day!
To learn more, refer to the SEBI Circular
