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How much money is required to buy/sell options?
The money you need for options trading depends on whether you're buying or selling an option and your existing positions.
Buying an Option (Long Call or Long Put):
- When you buy an option, your maximum potential loss is the premium you pay.
- The upfront cost is the total premium of the option contract.
- Calculation: Quantity (Lot Size) × Premium per share/unit
- Example: If the NIFTY option premium is ₹100 and the lot size is 25, you need ₹100 × 25 = ₹2,500 to buy one lot.
Selling an Option (Short Call or Short Put):- Selling an option means you receive the premium upfront, but your potential loss can be unlimited.
- Due to this risk, selling options requires a margin with the exchange.
- The margin required is dynamic and includes:
- SPAN Margin: Minimum margin required by the exchange.
- Exposure Margin (ELM): Additional margin for potential losses.
- Additional Margin: May be required based on market conditions.
- Premium Amount Received: Offsets some of your margin requirement.
- General Calculation: SPAN Margin + Exposure Margin + Any Additional Margin - Premium Amount Received
- Example: If a Bank NIFTY option requires a SPAN + Exposure margin of ₹1,00,000 and you receive a premium of ₹5,000, you need approximately ₹95,000 in your account.
Important Considerations:
- Regulatory Charges & Brokerage: Account for charges like STT, Transaction Charges, GST, and Groww's brokerage (₹20 per executed order for F&O).
- Groww's Margin Calculator: Use it for precise margin requirements.
- Physical Delivery Margins: Applicable for In-The-Money (ITM) stock options held until expiry. Ensure you have enough funds to avoid automatic square-off or penalties.
Understanding these requirements is crucial for managing your capital efficiently in F&O trading.