InvestorQ : Why does the exchange ask me to pay margins when I sell options? I don’t pay any margins when I buy options?
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Riya Dwivedi made post

Why does the exchange ask me to pay margins when I sell options? I don’t pay any margins when I buy options?

Answer
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rhea Babu answered.
2 years ago


Buying a call option is quite simple from the margining perspective as you only have to pay the premium margin. But when you sell a call option, there are a variety of margin payments. Firstly, there is the initial margin to be paid when you sell a call option. If the price of the stock goes up then the short-call position goes against you. In that case, there is also mark-to-margin that is payable. When you have sold a call option your margining liability is exactly like in the case of futures. That is because, when you sell an option, the risk profile is like a future. Your losses can be unlimited once your premium cost is covered. For example if you have sold a RIL 1100 call at Rs.23 then you are protected up to Rs.1123. Above Rs.1123, your losses can be unlimited because your premium earnings have been exhausted. That is why you have to pay margins when you sell options. You need to pay VAR margins, ELM margins and also MTM margins on a daily basis.