Why is higher than usual margin blocked for my F&O trades close to expiry?

Margins on Stock Futures and Options positions tend to increase four days prior to expiry day on account of Delivery Margins on positions which are expected to be settled physically.

Stock Futures and Options positions held till expiry are settled physically since October 2019, as against cash settlement which was the case before October 2019. All the open positions in stock futures and options on expiry day will need to be delivered in the form of actual shares.

Delivery margins, though not charged while taking positions, are levied on all the potential physically deliverable positions, starting 4 days before the expiry day. It continues to be levied until the positions are squared off before expiry or settlement is completed after expiry. This is in addition to SPAN and Exposure Margin levied on the F&O open positions, click here.

For example – If the expiry day is on Thursday, and you have an open position in TCS options contract on the previous Friday (Expiry -4), delivery margin will start getting levied, until open positions in TCS options contract are squared off before Thursday, or stocks of TCS are physically settled on the next Monday (Expiry+2).

Delivery margins shall be computed as per the margin rate applicable in Cash Market segment (i.e VAR, Extreme Loss Margins) of the respective security. If these margins are not maintained in your trading account whenever they are levied, it will lead to margin shortfall.

It is lowest on Expiry – 4, and gradually increases everyday till Expiry Day. It is levied in a staggered manner as below.

  • 10% of Delivery margins computed on Expiry - 4 EOD

  • 25% of Delivery margins computed on Expiry - 3 EOD

  • 45% of Delivery margins computed on Expiry - 2 EOD

  • 70% of Delivery margins computed on Expiry - 1 EOD