Investing Margin Exit Kite

Margin on exit calculation on Kite

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When you close an open position on Kite , the margin previously locked against that position is released back to your margin available on the funds page. The calculation behind this release is straightforward in simple cases and more nuanced for multi-leg portfolios.

Simple case: closing a single F&O position

If you have:

  • 1 lot of NIFTY future short.
  • SPAN + Exposure margin locked: Rs 1,30,000.

When you close (buy back) the lot:

  • SPAN engine recomputes the portfolio without this position.
  • Margin requirement for the residual portfolio is the same as before (zero, in this case).
  • Margin released = Rs 1,30,000.

The Rs 1,30,000 returns to margin available.

Partial close

If you have 3 lots of NIFTY future short and close 1 lot:

  • SPAN for 3 lots: Rs 3,90,000.
  • SPAN for 2 lots (after partial close): Rs 2,60,000.
  • Released = Rs 3,90,000 - Rs 2,60,000 = Rs 1,30,000.

Simple subtraction works when SPAN is linear in lot count (which is approximately true for index futures).

Multi-leg portfolio: non-linear margin

For multi-leg strategies (spreads, condors), margin is not linear:

  • Sell 1 NIFTY 22000 CE + Buy 1 NIFTY 22200 CE (bull put spread analogue, or net debit): SPAN may be ~Rs 25,000.
  • Sell 1 NIFTY 22000 CE alone (unhedged): SPAN may be ~Rs 1,30,000.

If you close the bought leg first:

  • Pre-close: SPAN = Rs 25,000 (the spread).
  • Post-close (only short call): SPAN = Rs 1,30,000.
  • “Released” = -Rs 1,05,000 (margin requirement increased, not decreased).

This is counterintuitive but consistent with risk: removing the hedge from a spread makes the residual position riskier, requiring more margin.

When trading spreads, close the legs in the correct order (or close all legs simultaneously) to avoid this margin spike.

Margin on exit vs realised P&L

Margin released is not the same as realised P&L. Two separate effects:

  • Margin release: Frees up the previously locked margin (cash or collateral); affects margin available.
  • Realised P&L: The actual cash gain or loss from the trade; affects cash balance after settlement.

Example:

  • Sell 1 NIFTY 22000 CE at Rs 100 premium (lot size 50). Premium credit: Rs 5,000. Margin used: Rs 1,30,000.
  • Buy back at Rs 30 premium. Premium debit: Rs 1,500. Margin released: Rs 1,30,000.
  • Realised P&L (gross): Rs 5,000 - Rs 1,500 = Rs 3,500.
  • Margin available change: + Rs 3,500 (P&L) + Rs 1,30,000 (release) - Rs 1,500 (buy-back) - Rs 5,000 (premium credit no longer there) = + Rs 1,27,000.

The net margin available increase is Rs 1,27,000 (the original Rs 1,30,000 margin minus the Rs 3,500 lost as realised loss profit, net of cash flows).

For intuition: think margin available change = realised P&L (gross) + margin released - charges.

Settlement timing

For F&O, the margin release happens immediately on close (intra-session). The realised P&L is also same-day for daily MTM. By contrast, for equity CNC sells, the margin release is immediate but the cash settlement is T+1.

Stock options at expiry

For physically-settled stock options approaching expiry, the margin used can rise sharply 2-3 days before expiry (pre-expiry physical-delivery margin layer). If you let the option expire ITM, the physical settlement margin is held until delivery completes.

To avoid this, close the position before the pre-expiry margin spike (typically 2-3 days before expiry).

See also

External references

References

  1. NSE Clearing, SPAN computation, nseclearing.com.
  2. SEBI, F&O margin framework, sebi.gov.in.
  3. Zerodha Support, Margin release on position close, support.zerodha.com.

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