SPAN Margin

The intuition

A flat margin rate treats a hedged iron condor and a naked short call the same way, which is both unfair to the hedger and unsafe for the clearing house. SPAN fixes that by asking one question of the entire portfolio: if the underlying moves by a defined amount and volatility shifts, what is the worst mark-to-market loss across the combined positions? That worst case, not a percentage of notional, becomes the margin. Offsetting legs reduce it; adding risk increases it.

NSE Clearing states on its margins page that it uses the SPAN system for margining in the equity derivatives segment, and that the parameter files are processed several times a day with updated inputs. The clearing corporation sets the price scan range and volatility scan range per underlying based on observed volatility, so NIFTY and a single stock future do not share one rate.

How the grid works

For each underlying, SPAN builds a set of scenarios that combine a move in the underlying price (up or down, in fractions of the price scan range) with a move in implied volatility (up or down by the volatility scan range). Every position is repriced under each scenario, the gains and losses are summed across the portfolio for that underlying, and the scenario with the largest loss sets the scanning risk. Two further pieces are added or subtracted:

• Calendar spread charge for positions in different expiries of the same underlying, because the grid assumes expiries move together and they do not.
• Short option minimum, so that a far out-of-the-money written option carries a floor margin even when the grid shows almost no loss.

The exposure margin, also called extreme loss margin, is charged separately as a percentage of contract value and is not reduced by hedges. Broker explainers quote it at about 2% of contract value for index futures and short index options and about 3.5% for stock futures and short stock options; the clearing corporation can raise it for a specific underlying. Since 20 November 2024 an additional 2% extreme loss margin applies to short index option positions on expiry day.

Formula

Initial margin = SPAN margin + exposure margin, where

SPAN margin = max over scenarios of (portfolio loss) + calendar spread charge, subject to the short option minimum

and exposure margin = exposure rate × underlying price × lot size × lots

Worked example (illustrative margin rates)

Suppose NIFTY is at 24,000 and a trader writes one lot (65 units) of the 24,400 call with 30 days to expiry for ₹266. Suppose the scan range in force is 9% and the exposure rate 2%; both are illustrative, since the clearing corporation publishes the real parameters daily.

Component	Calculation	Amount
Contract value	24,000 × 65	₹15,60,000
SPAN (worst scenario loss, up move with higher IV)	repricing across the grid	about ₹1,10,000
Exposure margin	2% × 15,60,000	₹31,200
Total initial margin	SPAN + exposure	about ₹1,41,000

Now suppose the same trader also buys the 24,600 call for ₹190, turning the naked call into a bear call spread. The grid now finds that the worst loss is capped at the width of the spread minus the net credit, so the SPAN component falls to roughly the maximum loss of the spread, about ₹8,000 in this example, while the exposure margin on the short leg remains. The hedge cut the margin by most of its value, which is exactly what SPAN is designed to recognise.

Why it matters

• Margins move during the day. Because the parameter files refresh intraday, a sharp rise in volatility raises SPAN on existing short positions without any trade on your part. Brokers can then call for funds or square off if the shortfall persists.
• Hedges are rewarded, but only inside one underlying. A short NIFTY call hedged with a long NIFTY call earns the offset; a short NIFTY call against a long BANKNIFTY call does not, because SPAN scans each underlying separately. Portfolio margin and cross-margining cover the limited cases where offsets across instruments are recognised.
• Peak margin is checked on snapshots. Since the 2021 peak-margin rules the clearing corporation samples positions during the day, so an intraday position must be margined at the time it is held, not just at close.

Common mistakes

• Expecting a fixed percentage. SPAN depends on the scan ranges and on the rest of your book, so the same short option can need different margin on different days.
• Forgetting the exposure margin, which is charged in full regardless of hedges and is often the part that remains on a tightly hedged spread.
• Placing the long leg of a spread after the short leg on a thin account: the short leg alone is margined at the naked rate first, and the order can be rejected before the hedge is in place.
• Ignoring the expiry-day add-on on short index options, which raises the extreme loss margin by 2% of contract value on the expiry date.

Indian specifics

NSE Clearing publishes the SPAN risk parameter files for the equity derivatives segment on its website and processes them at several fixed times each trading day. The clearing corporation also publishes the extreme loss margin rates per underlying. For physically settled stock derivatives, a separate delivery margin is layered on in the last four days before expiry. BSE uses the same SPAN methodology for SENSEX and BANKEX contracts through its own clearing corporation. Brokers display SPAN and exposure separately in their margin calculators, and the sum is what is blocked when the order is placed.

FAQ

What is SPAN margin in simple terms?

The worst-case portfolio loss across a grid of price and volatility shocks, charged as initial margin. Hedged positions pay less, naked positions more.

Is exposure margin part of SPAN?

No. It is a separate percentage-of-contract-value charge added on top of SPAN; the two together are the initial margin.

Why did my margin go up without any new trade?

SPAN parameters refresh intraday; higher volatility or a wider scan range raises the margin on existing positions.

Does SPAN give margin benefit for a spread?

Yes, for hedges within the same underlying; the SPAN part falls to about the spread's maximum loss, while exposure margin on the short leg remains.

Is SPAN margin the same on NSE and BSE?

Same method, separate parameter files, so the rupee amounts differ by exchange and underlying.

Related terms

• Exposure margin, the charge layered on top of SPAN
• Initial margin, SPAN plus exposure
• Portfolio margin, offsets across positions
• Delivery margin, the expiry-week add-on on stock F&O
• Margin call, what happens on a shortfall
• Maintenance margin, the level you must keep