need how margin calculated for for buysell/put sell i see large margin require to place an order.
@firoz_quraishi - There will be a large difference between buying and selling options due to the significant additional risk of selling options. When buying options, the capital required to enter the position will be the price x lot size. When selling options, you donāt pay a premium but collect it. However, you need to āreserveā capital in case of an adverse price movement. The margin calculation is based on exchange rules and is a combination of SPAN and exposure margin as well as potentially value at risk and extreme loss margins.
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@mike thank you for response.
Having one more question from snip, while calculating todays profit/loss are we using BSM pricing option or black 76 option for option pricing. As per my understanding in black 76 option pricing future price is used in place of spot price.
Need your support on this as well thank you and have a great festive day.
The difference between the two is minorā¦I wouldnāt focus on that. This screenshot is of the BSM. For B76, the blue term (spot) has the futures price substituted. The red term āfalls outā when you use futures because it is accounted for.
The concept of Black76 is more relevant for commodities as the cost of carry includes not just the interest rate but storage + transportation costs which can be substantial. This is also where alpha can be had between using the cost of carry implied by the futures price and your personal cost of carry. For stocks and indices, things like the bid-ask spread, liquidity, and recency of trades are more important than cost of carry. To drive this point, there is a reason that Rho is generally an ignored Greek. On the time horizons that most people trade options, interest rate differences result in negligible impacts in pricing.
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