SPAN Margin: How NSE Clearing Works Out the Core Margin on Your F&O Trades

Open a futures position with any broker and the order screen throws a margin number at you before you can blink. Most of that number is SPAN margin, the core initial margin that NSE Clearing works out for every futures and options position. Traders tend to treat it as a fee they have to put up. It’s more useful to read it as the clearing house’s estimate of how much you could plausibly lose by tomorrow, because that’s exactly what it is.

We’ll go through how the system thinks, what goes into the number, and then work through a few rupee examples so the logic sticks. All the rules here come from NSE Clearing’s own pages on equity derivatives margins and NSCCL SPAN. The prices and lot sizes in the examples are made up to keep the arithmetic clean.

What SPAN margin actually is

SPAN stands for Standard Portfolio Analysis of Risk. It’s a system licensed from the Chicago Mercantile Exchange, and NSE Clearing uses it to margin the F&O segment. Two words in that name matter: portfolio and risk. SPAN doesn’t look at your positions one at a time. It looks at everything you hold in an underlying, asks what happens to the whole lot under a set of bad days, and charges you for the worst one.

NSE Clearing says the initial margin is based on a 99% value at risk over a one-day horizon. Futures get a two-day horizon, since the mark-to-market on a futures contract may not be collected before trading starts the next day. In plain terms, the margin is sized so that on roughly 99 days out of 100, the move should not wipe it out before the clearing house can collect more.

The flow of money runs downward. NSE Clearing collects initial margin from the clearing member, the clearing member collects it from the trading member (your broker), and the broker is required to collect it upfront from you. That’s why you can’t place the trade without the cash or collateral sitting in your account first.

SPAN margin isn’t a charge for trading. It’s the clearing house’s answer to one question: how much could this position reasonably lose before we can ask for more money?

The 16 scenarios behind every SPAN margin number

Here’s the clever bit. For each contract, NSE Clearing runs the pricing maths in advance and publishes the results daily in a SPAN risk parameter file. Brokers and members apply those numbers to their own portfolios, so nobody has to price options on the fly.

The results are called a risk array: sixteen numbers per contract, one for each standard scenario. Each scenario combines a move in the underlying price with a move in volatility:

• Price unchanged, with volatility up and with volatility down (2 scenarios).
• Price up and down by one-third of the price scan range, each with volatility up and down (4 scenarios).
• Price up and down by two-thirds of the range, volatility up and down (4 scenarios).
• Price up and down by the full range, volatility up and down (4 scenarios).
• An extreme move up and an extreme move down, each double the price scan range, where only 35% of the resulting loss is counted (2 scenarios).

In the risk array, losses are shown as positive numbers and gains as negative ones. SPAN adds up the risk arrays across your positions, scenario by scenario, and picks the largest loss out of the sixteen. NSE Clearing calls this the “largest reasonable loss”, and it becomes your scanning risk charge.

Why only 35% on the extreme moves? Those two scenarios exist mainly for deep out-of-the-money short options. Such options barely react to ordinary moves, but a huge move can push them into the money and blow up the seller. Price changes that large are rare, so the system covers only 35% of that loss. Still, as we’ll see, that 35% is sometimes the biggest number on the sheet.

How wide is the price scan range?

The price scan range is the probable price change over a two-day period, and the floor depends on the product:

• Index futures and options: six standard deviations scaled up by √2, subject to at least 9.3% of the underlying price.
• Index options with more than nine months to expiry: the same 6σ×√2 base, with a floor of 17.7%.
• Stock futures and options: 6σ×√2, subject to at least 14.2% of the underlying price.

Stocks get one more twist, and it’s about liquidity. NSE Clearing measures the impact cost of a ₹5 lakh order using order-book snapshots from the previous six months, recalculated on the 15th of every month. If the mean impact cost goes above 1%, the price scan range for that stock is scaled up by the square root of three, which is roughly 1.73 times. The scaling is dropped once impact cost falls back to 1% or below. So thinly traded F&O stocks carry fatter margins, and the change can land on positions you already hold.

The other pieces: calendar spreads and net option value

SPAN’s scan assumes prices move in lockstep across expiries. They don’t, quite. So for a portfolio with, say, long near-month and short far-month positions, SPAN adds a calendar spread charge on top of the scanning risk to cover the basis risk between the months. It forms these spreads using deltas, which is why a near-month option position and an opposite far-month option position can be treated like a futures calendar spread of the same delta.

Then there’s net option value. NSE Clearing defines it as the mark-to-market value of your long option positions minus your short option positions. The total SPAN margin is the SPAN risk requirement (scanning risk plus spread charges) less this net option value. Only sell positions are actually margined; long options give an offsetting benefit to the extent you hold them.

SPAN is only the core. Your total initial margin also includes delivery margins and margin on consolidated crystallised obligations, and on top of all that sits the extreme loss margin, which is 2% of notional value for index derivatives and 3.5% for stock derivatives in the standard case.

Worked example 1: a single stock futures position

Let’s take a made-up stock trading at ₹1,000 with a lot of 500 shares. One futures lot has a contract value of 1,000 × 500 = ₹5,00,000. Assume its price scan range sits right at the stock floor of 14.2%.

A long futures position has a delta of 1, so its risk array is simple. The full-range down move loses 14.2% of ₹5,00,000, which is ₹71,000. The extreme down move is double the range, 28.4%, a loss of ₹1,42,000, but SPAN counts only 35% of it: ₹49,700. Volatility changes don’t matter for a plain future.

The largest of the sixteen is ₹71,000, so that’s the scanning risk charge. Add the 3.5% extreme loss margin on ₹5,00,000, which is ₹17,500, and the total comes to ₹88,500. That’s 17.7% of the contract value, or leverage of about 5.6 times.

Now feel what that leverage means. If the stock drops 10% the next day, the position loses ₹50,000, which is about 56% of the ₹88,500 you put up. A 10% move isn’t an exotic event for a mid-cap F&O stock.

Worked example 2: an index future versus a stock future

Suppose a made-up index sits at 20,000 and one lot is 50 units. Contract value: ₹10,00,000. With the price scan range at the 9.3% floor, the full-range down scenario loses ₹93,000. The extreme scenario is 18.6%, a ₹1,86,000 loss, of which 35% is ₹65,100. So scanning risk is ₹93,000. Extreme loss margin at 2% is ₹20,000, bringing the total to ₹1,13,000, or 11.3% of contract value.

Put that next to example 1. The stock future needed 17.7% of contract value, the index future 11.3%. That gap comes straight from the different floors (14.2% against 9.3%) and the different extreme loss margins (3.5% against 2%). A broad index is diversified; a single stock can fall off a cliff on one bad result.

Worked example 3: the same stock gets illiquid

Go back to the ₹5,00,000 stock future. Say the monthly review finds its mean impact cost has crossed 1%. If the scan range was 14.2% before this adjustment, it now becomes 14.2% × 1.732, or about 24.6%. The scanning risk charge jumps from ₹71,000 to roughly ₹1,23,000. With the ₹17,500 extreme loss margin, total margin moves from ₹88,500 to about ₹1,40,500 on the same position.

Nothing about your trade changed. The market around the stock did. If you’re running close to your available funds, that kind of jump is how a perfectly ordinary position turns into a margin shortfall.

The margin on a position can rise without the price moving at all. Liquidity, volatility and expiry rules all feed the number.

Worked example 4: selling a far out-of-the-money call

This is where the 35% scenarios earn their keep. Take a short call on our ₹1,000 stock with a strike 20% above the price, one lot of 500 shares. Assume these made-up risk array values for the position:

• Largest loss across the 14 normal scenarios: ₹30,000 (the option stays mostly out of the money).
• Loss on the extreme up move: ₹1,00,000, of which 35% counts, so ₹35,000.

The scanning risk charge is ₹35,000, because the extreme scenario beats every normal one. Now the net option value. You’re short an option currently worth, let’s say, ₹5,000 for the lot, so long minus short is −₹5,000. SPAN margin is the risk requirement minus net option value: ₹35,000 − (−₹5,000) = ₹40,000.

The extreme loss margin on a short option uses the value of the equivalent underlying shares, ₹5,00,000 here. At 3.5%, that’s ₹17,500, taking the total to ₹57,500 to collect a ₹5,000 premium. (Short stock options that are more than 30% out of the money attract a 5.25% extreme loss margin instead.) Seen this way, the margin tells you how lopsided the trade is: a small, likely gain set against a rare but heavy loss.

Worked example 5: why a hedge shrinks the bill

Say you hold the long stock future from example 1 and also buy a put on the same stock. SPAN adds the two risk arrays scenario by scenario. Using made-up numbers:

• Full-range down move: futures lose ₹71,000, the put gains ₹55,000, net loss ₹16,000.
• Price unchanged, volatility down: futures flat, the put loses ₹4,000, net loss ₹4,000.
• Full-range up move: futures gain ₹71,000, the put loses ₹9,000, net gain ₹62,000.

If ₹16,000 turns out to be the worst net figure across all sixteen, that’s the scanning risk, against ₹71,000 for the naked future. This is the point of a portfolio system. It margins what you can actually lose, not the sum of each leg treated as if the others didn’t exist.

Extra margin for wild stocks

NSE Clearing also has a rule for stocks that swing hard. If the intraday movement in the underlying (the largest of high minus low, high minus previous close, or low minus previous close) exceeds 10% on three or more days in the last month, the minimum total margin becomes the largest intraday move seen in that month. That stays in place until the monthly expiry that falls after three months from the date it’s levied.

A tougher version applies if the stock moves more than 10% intraday on 10 or more days in the last six months. Then the minimum total margin equals the biggest intraday move over those six months, and it sticks until the monthly expiry after one year. If you trade momentum names in F&O, check for these before you size a position.

What SPAN margin should change about how you trade

A few practical takeaways, and none of them needs a formula.

Size from the loss, not the margin. The margin is the clearing house’s one-day protection, not a measure of what you can afford to lose. In example 1, a single 10% move ate more than half the margin. Your position size should come from a stop-loss and a fixed share of capital, the way we set it out in our guide to risk management in trading.

Keep a buffer. Margins move with volatility, liquidity and the extra-margin rules above. If your funds only just cover today’s requirement, tomorrow’s revision can push you short without the market moving against you.

Read the margin as a risk signal. When a short option demands ₹57,500 to earn ₹5,000, the system is telling you something about the tail. Whether the trade is worth it comes down to your numbers over many trades, which is what trading expectancy measures.

The bigger picture is sobering. A SEBI study released in September 2024 found that 93% of over 1 crore individual F&O traders made losses between FY22 and FY24, averaging around ₹2 lakh per trader including transaction costs. The same release says more than 75% of loss-making traders kept trading despite consecutive years of losses. Leverage is the common thread, and SPAN margin is where that leverage is set.

Quick recap

• SPAN margin is the core initial margin on F&O positions, based on 99% one-day value at risk (two days for futures).
• It runs 16 price-and-volatility scenarios on your whole portfolio in an underlying and charges the worst one; the two extreme scenarios count at 35%.
• Price scan range floors: 9.3% for index products, 17.7% for index options beyond nine months, and 14.2% for stocks, with a √3 scale-up for stocks whose impact cost exceeds 1%.
• Total SPAN margin is scanning risk plus spread charges, less net option value; extreme loss margin (2% index, 3.5% stocks in the standard case) sits on top.
• Hedged portfolios need less margin because gains in one leg offset losses in another within the same scenario.

Sources

• NSE Clearing: Equity derivatives margins
• NSE Clearing: NSCCL SPAN
• SEBI press release PR No. 22/2024 on individual traders’ F&O profits and losses

Disclaimer: This article is for education only and is not investment advice. Prices, lot sizes and risk array values in the worked examples are hypothetical; actual margins depend on NSE Clearing’s daily risk parameters and your broker’s requirements. Derivatives trading carries a high risk of loss; do your own research or consult a SEBI-registered adviser before trading.