You must pay margins on your long equity call positions if the options are in-the-money (ITM) when they approach expiry. This week, we discuss how margins can affect your trading decision and how you can adjust your strategy accordingly.

Margin calls

If you initiate a long call position on an underlying, you must pay the premium upfront. Logically, you must have no further obligation. So, why does NSE levy margins on long positions on equity options? The reason is equity options are delivery-based. That is, if you hold ITM calls at expiry, you are required to take delivery. That means, you must have an amount equal to the permitted lot size times the strike price in your trading account. To ensure that you do not default on your payment at expiry, your broker will typically levy delivery margins on your long call position starting four days before expiry. 

Now, traders do not want to take delivery of options for two reasons. One, the objective is to simply bet on an underlying’s price movement, not buy the underlying. And two, traders want to avoid paying margins that progressively increase to 100 per cent on expiry day. This requires that you close your position well before expiry. How should you incorporate this into your trading decision?

It is typical to determine the potential gains assuming your price target will be met at option expiry. This is because time value of an option is zero at expiry, making it easy to determine the price of the option for a given price target. Note that the price of an ITM call at expiry is its intrinsic value, the difference between the underlying price and the strike price. But you cannot hold the position till expiry if you want to avoid the progressively increasing delivery margins. Also, it will be incorrect to assume that the price target will be met well before expiry; that would create an upward bias, as potential gains will be higher as you will be able to recover some time value when you sell the option. What should you do? You should determine the likelihood of the underlying trading above the position’s breakeven price before expiry. The breakeven price is the strike price plus the option price you pay to initiate the position. If that likelihood is high, you should consider initiating a long call position.

Optional reading

Determining the option price before expiry requires several assumptions that may be inaccurate. An optimal way would be to analyse the price charts to determine whether the underlying can move past the breakeven price. True, the reading of the price chart may not provide a timeline for the underlying to trade above the breakeven price. But the likelihood can be surmised based on the distance between current price and the breakeven price. Note that sooner the price moves above the breakeven price after your initiate the position, larger the gains.

(The author offers training programmes for individuals to manage their personal investments)

Published on April 25, 2026