Hedged positions margin benefit on Zerodha
Hedged F&O positions on Zerodha enjoy reduced SPAN margin compared to naked positions. The SPAN engine recognises offsetting legs (long + short, long-call + long-put strangle, etc.) and reduces the worst-case loss scenario, resulting in lower margin requirements.
How hedge benefit works
The SPAN engine runs 16 stress scenarios across the portfolio. For each scenario:
- Naked short call: large loss in up-scenarios.
- Long call (hedge): gain in up-scenarios offsetting the short.
- Net loss across scenarios is much smaller.
The SPAN margin reflects the smaller worst-case loss, giving the hedge benefit.
Common hedge structures
| Structure | Description | Hedge benefit |
|---|---|---|
| Bull call spread | Long lower CE + Short higher CE | Substantial |
| Bear put spread | Long higher PE + Short lower PE | Substantial |
| Iron condor | Long + short calls + Long + short puts | Very substantial |
| Iron butterfly | Centred 4-leg structure | Substantial |
| Calendar spread | Same strike different expiries | Modest |
| Strangle | Short OTM call + Short OTM put | Limited (both legs short) |
| Straddle | Short ATM call + Short ATM put | Limited |
Example savings
For a bull call spread on NIFTY (long 22000 CE + short 22100 CE):
- Standalone short 22100 CE: SPAN ~Rs 1.3 lakh + Exposure ~Rs 50K = Rs 1.8 lakh.
- Bull call spread: Net debit (~Rs 5,000) + ~Rs 20K margin = Rs 25K.
The hedge benefit: ~Rs 1.55 lakh saved per lot.
SEBI hedge benefit caps
SEBI / NSE Clearing have caps on hedge benefit:
- Maximum hedge benefit per portfolio.
- Specific limits for inter-month or cross-underlying hedges.
These caps prevent unlimited margin reduction from synthetic structures.
How to get the benefit
- Order leg sequence: Place long (hedge) leg before short leg.
- Same expiry: Ensure legs are in the same expiry month (otherwise calendar; reduced benefit).
- Verify on Kite: Margin required field shows the hedge-applied figure.
- Cross-check on calculator: Use Zerodha margin calculator to verify.
If the benefit doesn’t apply, see How to fix full margin required for hedged positions .
When hedge benefit doesn’t apply
- Cross-underlying (Nifty + BankNifty options).
- Different expiry combinations (some calendars).
- Certain SEBI-flagged structures.
- During specific stressed-market periods (additional margin requirements).
Capital efficiency
Hedged strategies allow more positions per capital unit:
- For Rs 5 lakh capital, you might run:
- 1-2 naked short option lots.
- Or 10-15 lots of spreads.
This is a major capital-efficiency advantage of hedge strategies.
Risk reduction
Hedge benefit isn’t just margin; it’s also risk:
- Naked short option: theoretically unlimited loss.
- Bull call spread: max loss capped at spread width.
The reduced SPAN reflects the genuinely lower risk.
See also
- Naked option selling margin on Zerodha
- SPAN margin on Zerodha
- Exposure margin on Zerodha
- Zerodha margin calculator
- How to fix full margin required for hedged positions
- Margins and leverage at Zerodha
- Margin required on order window
- Margin available / used / cash on Kite funds
- Cash component vs collateral component
- Margin on exit calculation
- Higher margin near expiry
- Long-dated contracts margin requirements
- Additional margin for selling index options
- Covered call margin benefit
- Option premium credit on Kite funds
- Use option premium received as margin
- Sticky order window on Kite
- How to add F&O contracts to the marketwatch
- How to add Nifty / BankNifty options to the marketwatch
- 50:50 cash collateral rule explained
- SEBI peak margin rules explained
- Lot size revision F&O 2024
- SEBI 90% retail F&O traders lose money study
- Margin shortfall and auto-square-off
- Kite Positions tab explained
- Futures and options
- Zerodha
- Kite (Zerodha)
- NSE derivatives expiry calendar
External references
References
- NSE Clearing, SPAN hedge methodology, nseclearing.com.
- SEBI, Hedge benefit framework for F&O, sebi.gov.in.
- Zerodha, Margin policies on hedged positions, zerodha.com.