For buying equity options, the margin is simply the premium paid for the option contract multiplied by the number of contracts. For selling equity options, however, a margin consisting of SPAN (Standard Portfolio Analysis of Risk) Margin and an Exposure Margin is required, with the total margin calculated by summing these two components.

Premium: When you buy an option (call or put), you are only required to pay the option's premium to the seller.
Calculation: Margin = Premium × Number of Contracts.

When you sell an option, you are taking on more risk, so the exchanges and brokers require an upfront margin. The total margin is the sum of the SPAN margin, Exposure Margin, and any applicable ad-hoc or additional margins. These margins are determined by exchanges like NSE and brokers to mitigate risk, with calculations changing daily based on market conditions and volatility.

A strike price (or exercise price) is the fixed price at which the buyer of an options contract can buy or sell the underlying asset, such as a stock. It is determined when the contract is created and remains constant until expiration. For a call option, the strike price is the price at which the holder can buy; for a put option, it's the price at which the holder can sell.

A call option is a contract that gives the buyer the right to purchase an underlying asset (like a stock) at a predetermined price (strike price) on or before a specific date (expiry date). Traders buy call options when they expect the price of the underlying asset to increase.

A put option is a contract that gives the buyer the right to sell an underlying asset at a predetermined price (strike price) on or before a specific date (expiry date). Traders buy put options when they expect the price of the underlying asset to decrease.

SPAN Margin, Exposure Margin (ELM - Extreme Loss Margin), Mark-to-Market (MTM) Margin & Ad-hoc Margins. Total Margin: The final margin required is the sum of the SPAN Margin + Exposure Margin + any applicable ad-hoc margins

SPAN (Standardized Portfolio Analysis of Risk) margin is the minimum amount of funds required to initiate a futures and options (F&O) trade.
Calculation : SPAN calculated by a sophisticated algorithm that determines the maximum one-day loss potential for an entire trading portfolio. The SPAN algorithm assesses various market conditions, volatility, and contract details to find the worst-case scenario for the portfolio and requires margin to cover those potential losses, ensuring market stability and protecting traders, brokers, and exchanges.

Derivatives exposure margin is an additional amount of capital charged by exchanges or brokers above the initial margin, designed to cover potential, unexpected volatility in the market. It acts as a financial cushion against adverse price movements and is calculated as a specific percentage of the total contract value, which varies based on the asset and exchange rules.
Calculation :The calculation for exposure margin is straightforward but varies: 1. Identify the total contract value, 2. Apply the exchange-mandated percentage, 3. Multiply the value by the percentage. For example, a 3% exposure margin on a ?500,000 futures contract would require an additional ?15,000.

This is a daily adjustment to your margin balance based on the profit or loss incurred on your open positions. If your account balance falls below the required margin after accounting for MTM losses, you will receive a margin call.

Sometimes, exchanges or brokers may impose additional margins on specific securities or for particular situations, such as when a physical settlement contract is nearing expiry.

Equity derivatives futures margins are calculated as the sum of SPAN margin and exposure margin, which collectively form the initial margin.

SPAN (Standardized Portfolio Analysis of Risk) margin is the minimum amount of funds required to initiate a futures and options (F&O) trade.
Calculation : SPAN calculated by a sophisticated algorithm that determines the maximum one-day loss potential for an entire trading portfolio. The SPAN algorithm assesses various market conditions, volatility, and contract details to find the worst-case scenario for the portfolio and requires margin to cover those potential losses, ensuring market stability and protecting traders, brokers, and exchanges.

Derivatives exposure margin is an additional amount of capital charged by exchanges or brokers above the initial margin, designed to cover potential, unexpected volatility in the market. It acts as a financial cushion against adverse price movements and is calculated as a specific percentage of the total contract value, which varies based on the asset and exchange rules.
Calculation : The calculation for exposure margin is straightforward but varies: 1. Identify the total contract value, 2. Apply the exchange-mandated percentage, 3. Multiply the value by the percentage. For example, a 3% exposure margin on a ?500,000 futures contract would require an additional ?15,000

This is a daily adjustment to your margin balance based on the profit or loss incurred on your open positions. If your account balance falls below the required margin after accounting for MTM losses, you will receive a margin call.

Sometimes, exchanges or brokers may impose additional margins on specific securities or for particular situations, such as when a physical settlement contract is nearing expiry.

"VaR Margin" refers to a Value at Risk (VaR) Margin. A margin, often mandated by stock exchanges, to cover potential losses due to price volatility, typically over one day, at a given confidence level.
Calculation : VaR margin is calculated using three key parameters: the confidence level (e.g., 99%), the time horizon (e.g., one day), and an estimate of loss based on historical price trends and volatilities, often using statistical models.

ELM refers to a Extreme Loss Margin. is an additional margin required by exchanges to cover potential losses from severe, unexpected market volatility, especially on expiry days for derivatives. ELM acts as a safeguard against sudden, extreme price movements that Value at Risk (VAR) models may not predict.
Calculation : It is calculated as a fixed percentage of the trade value.

Ad-hoc margin is an extra, temporary margin requirement imposed by exchanges or brokers on specific securities due to heightened risk, like high volatility, to protect the market and participants. And can be called upon at any time.
Calculation : Its calculation depends on the specific rules of the stock exchange or broker and is often based on factors such as a security's price movement history, such as rapid price changes, potential market manipulation, or insufficient liquidity in a particular stock.

Equity delivery margin is the upfront margin required to purchase shares for long-term holding in your Demat account, calculated based on the transaction value and the exchange's regulations.

Equity trading margins change multiple times a day because they are affected by real-time market volatility and are subject to regulatory updates and daily margin calls from brokers. Margin calculations (like VaR, ELM & Adhoc margin) are frequently updated throughout the day, with some being revised up to six times a day.