When you sell an Options contract using collateral margin, your position can be liquidated in case you don’t maintain sufficient margin in your account against your position. Trading Margin in your account can drop due following:
- Due to increased haircuts on securities you have pledged (Example: Suppose you have pledged your Company A shares worth INR 1Lac. As per 15% haircut, you will get a margin of INR 85000. Using this margin, you sell a Nifty Option. If the haircut is increased to 20%, your margin benefit will be reduced to INR 80000. In case your option position requires a margin more than 80000, your collateral/position will be liquidated.)
- If the value of the pledged securities has gone down (Example: You hold Company A shares worth INR 1lac today and have got a margin of INR 85000 after 15% haircut. If your share value drops to INR 95000, your margin benefit will be reduced to INR 80750. In case your option position requires a margin more than 80750, your collateral/position will be liquidated.)
- If Exchange has increased SPAN Or Exposure margin on the futures/options contract
Please note, in case you fail to square off your in the money stock option position till expiry, physical delivery will take place. Kindly ensure you have sufficient margins/shares available.