How-to Hedge benefit Margin

How to fix full margin required for hedged positions

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When you set up a hedged F&O strategy and Kite shows the full margin (as if the legs were standalone), the hedge benefit isn’t being applied. The cause is usually the order in which legs are placed.

Conflict-of-interest disclosure. This guide is published by WebNotes Editorial Team for informational purposes. WebNotes has no commercial relationship with Zerodha.

Step-by-step procedure

Six steps per the procedure infobox. The notes below cover hedge mechanics.

Why order matters

The SPAN engine applies hedge benefit based on the current portfolio. If you place the short leg first:

  • SPAN sees only the short leg.
  • Full SPAN applies (no hedge benefit).
  • Margin required = full SPAN + Exposure.

If you then place the long (hedge) leg:

  • SPAN sees both legs.
  • Hedge benefit applies.
  • Net margin = significantly reduced.

But the original short leg was opened with full SPAN; the broker may not refund the unused margin instantly.

Best practice: long leg first

For most spreads:

  • Buy (long) the lower-strike option first.
  • Then sell (short) the higher-strike option.

This way, SPAN sees the long position first; when the short is added, hedge benefit applies immediately.

Iron condor

For a 4-leg iron condor:

  1. Buy lower-strike put (long protective).
  2. Buy higher-strike call (long protective).
  3. Sell middle-strike put (premium-generating).
  4. Sell middle-strike call (premium-generating).

The two long legs first, then the two short legs.

Verification via margin calculator

Use the Zerodha margin calculator :

  1. Enter all legs.
  2. Compare margin with hedge benefit applied (multi-leg view) vs without (each leg standalone).
  3. Confirm the savings.

The difference is the hedge benefit you should see in Kite.

When hedge benefit doesn’t apply

Some specific configurations don’t get hedge benefit:

  • Cross-underlying (e.g., Nifty + BankNifty options).
  • Different expiry combinations (some calendars).
  • Specific contract restrictions.

For these, full margin applies per leg.

See also

External references

References

  1. Zerodha Support, Hedge benefit application, support.zerodha.com.
  2. NSE Clearing, SPAN methodology, nseclearing.com.

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