Definition
Margin Benefit (Hedged Positions)
Margin benefit is the reduction in required margin when positions hedge each other, lowering the capital needed for spreads.
Because SPAN calculates risk on the whole portfolio, a hedged structure like an iron condor or a calendar spread requires far less margin than its naked legs would individually — the offsetting risk earns a margin benefit. This makes defined-risk strategies capital-efficient.
On the NSE, the benefit is significant: selling a naked Nifty option may block lakhs in margin, while turning it into a spread by adding a protective leg can cut the requirement sharply. Indian traders structure trades to capture this benefit, though they must place the hedging leg first to avoid a temporary naked-position margin spike.
Related terms
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
- Calendar Spread (Options)A calendar spread sells a near-term option and buys a longer-term option at the same strike to profit from time decay and volatility.
- SPAN MarginSPAN margin is the core risk-based margin for F&O positions, calculated by simulating worst-case price and volatility moves.
- Vertical SpreadA vertical spread buys and sells two options of the same type and expiry but different strikes, capping both risk and reward.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.