A margin figure is not a percentage the broker chose. On the Indian exchanges it is built from three components and one credit, and the components answer different questions.
The scanned risk, computed by a SPAN-style engine, is the largest loss the position would suffer across a fixed array of sixteen scenarios in which the underlying and its implied volatility are shocked together. The array is not a probability model. It is a stress grid. The price moves by nothing, a third, two thirds and a full price scan range in each direction, each combined with volatility up and volatility down, which gives fourteen scenarios. Two more shock the price by twice the scan range, and there the clearing corporation covers only 35% of the loss, on the theory that a move that large is a tail the whole system shares. The worst cell of the grid becomes the scanned risk. Worked Example 3 builds the entire array by hand.
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What are exposure margin and net option value?
The exposure margin is a flat percentage of notional, layered on top, and it exists because the scenario grid is calibrated to normal volatility and the clearing corporation wants a cushion that does not depend on a model. For index futures and short index options the rate has been 3% of notional; for stock derivatives it is higher and is set as the greater of a percentage or a multiple of the underlying's daily volatility. The rate is a circular, so it carries a verify flag.
The net option value runs the other way. A short option position has received a premium, and that premium sits in the account as a credit against the requirement. On the covered call in Worked Example 3, the ₹13,948 of premium received reduces a ₹2,10,550 initial margin to ₹1,96,602 of net cash.
How is margin blocked and collected?
Two distinctions inside the word "margin" cause more confusion than anything else here. Initial margin is the good-faith deposit posted when a position is opened, and it is forward-looking: it answers "how much could this lose tomorrow". Mark-to-market margin is backward-looking cash: it is the loss that has already happened, moved out of the account at the end of the session. The first is blocked, the second is spent. A position can be fully margined and still generate a daily cash call, which is the difference between a future and a forward stated as an operational fact rather than a theory.
The last piece is timing. India's regulator requires that margins be collected upfront, before the trade, and monitors compliance by taking random intraday snapshots and comparing the margin actually collected against the requirement at that instant. The highest of those snapshots sets the peak margin. Short collection at any snapshot attracts a penalty, illustratively 0.5% a day on a shortfall under ₹1 lakh and more above it, so a broker facing a client short by ₹45,000 pays ₹225 for the day and passes it on. The practical effect on a trading account is that the cash you need is not the cash the position needs at the close; it is the cash it needed at the worst moment of the day.
Blocked money is not spent money, and an account feels both.
The expiry-week delivery ramp, in rupees
Physical settlement creates a credit exposure the clearing corporation has to cover, and it covers it by collecting the cash-market margin on the shares that are about to move, staged across the last five sessions. The staging exists so that a position which drifts into the money does not create a single overnight cash call the size of the whole delivery.
The standard schedule blocks 10% of the delivery margin four sessions before expiry, 25% three sessions before, 45% two sessions before, 70% on the day before, and 100% on expiry day, with the delivery margin itself computed as the underlying's cash-market margin rate applied to the value of the deliverable quantity. Both the staging percentages and the underlying margin rate are exchange circulars and carry a verify flag.
Run it on the opening position: 1,200 shares, being two lots of 600, on a stock whose cash-market margin rate is 20.00%.
| session | close (₹) | delivery value (₹) | full margin (₹) | stage | blocked (₹) |
|---|---|---|---|---|---|
| E−4 | 1,452.00 | 17,42,400 | 3,48,480 | 10% | 34,848 |
| E−3 | 1,463.50 | 17,56,200 | 3,51,240 | 25% | 87,810 |
| E−2 | 1,441.00 | 17,29,200 | 3,45,840 | 45% | 1,55,628 |
| E−1 | 1,469.75 | 17,63,700 | 3,52,740 | 70% | 2,46,918 |
| E | 1,478.20 | 17,73,840 | 3,54,768 | 100% | 3,54,768 |
Why do accounts get liquidated in expiry week?
The blocked amount rises by ₹3,19,920 over four sessions on a position whose premium cost ₹34,200. That is a 10.4-times multiple of the original outlay, blocked before any settlement has happened, and it arrives on a schedule the trader did not choose and probably did not read.
Accounts get liquidated in expiry week for exactly this reason, and what gets liquidated is usually the other positions, the ones the broker can close to free up cash.
Two operational consequences follow directly. Brokers commonly square off client positions likely to go to delivery when the client's funds do not cover the ramp, often a session or two before expiry and at a price the client did not pick. And the ramp is recomputed daily on the closing price, so a position that moves further into the money in expiry week has its margin requirement rising at the same time as its intrinsic value. That feels like being punished for winning. It is really the clearing corporation pricing a credit exposure that is genuinely growing.