Chapter 2 of 5
SPAN, extreme-loss margin and portfolio offsets
Understand risk-model components and why a simple percentage calculator cannot reproduce an official portfolio margin calculation.
In this chapter
A portfolio model is not a flat percentage #
SPAN evaluates a defined portfolio under risk scenarios and parameters. Contract terms, price, volatility and offsets can affect the computed requirement. An illustrative notional percentage cannot reliably reproduce a complete official model.
Offsets are conditional on the recognized combination of positions and current rules. Closing a hedge leg first can leave another position with a larger standalone requirement. Portfolio margin can therefore depend on order sequence as well as the intended final set of positions.
Read the components and their scope #
The NSE Clearing margin overview describes SPAN, extreme-loss and other obligations. Its displayed standard ELM figures include 2% for index derivatives and 3.5% for stock derivatives, with exceptions; it also describes an additional 2% on expiring short index options. These are dated reference points checked on 23 October 2026, not a complete quote for every contract.
Special cases, volatility conditions and operative circulars can change what applies. A static overview must not override a later circular. The 2026 SEBI single-stock calendar-spread review is linked precisely because expiry-day treatment needs a product-specific check.
A transparent worksheet must say what it omits #
The margin worksheet adds component amounts that you enter from one consistent hypothetical or broker-provided breakdown. It does not compute SPAN, infer portfolio offsets or certify exchange compliance.
Do not enter a combined total into one component and then add the other components again. Separate the margin requirement from premium cash flows and a user-chosen stress reserve. A lower computed amount is not evidence that an order will be accepted.
Decision lab: An offset is a conditional resource estimate #
Portfolio margin may recognise relationships among positions, but the treatment depends on the applicable methodology, inputs and contract lifecycle. A cheaper displayed requirement does not prove that market or funding risk has disappeared.
Model loss of a hypothetical offset at expiry while the economic positions remain open. Recalculate available resources and cash under an adverse move. Read the current operative documents and broker requirements before assuming any real offset survives unchanged.
Hypothetical worked example
Decompose a hypothetical funding figure
Suppose an illustration supplies SPAN ₹40,000, ELM ₹10,000 and other margin ₹5,000. Total entered margin is ₹55,000. If separate premium payable is ₹3,000 and an assumed MTM reserve ₹7,000, the cash-flow planning total is ₹65,000 before any additional costs.
If the original ₹40,000 field were actually an all-inclusive margin quote, adding ELM again would double-count. Component labels must match their source.
Margin released by an offset is not automatically available before the broker recognizes the completed combination. Test the funding sequence separately from the end-state arithmetic.
Common mistakes
- Describing a flat notional percentage as a live SPAN calculator.
- Applying an index expiry rule automatically to a stock or commodity contract.
Can a flat percentage reproduce every SPAN portfolio requirement?
Make this chapter useful
Can you defend the reasoning?
Before moving on, answer the self-check in your own words and write why each alternative fails. Use the worked example to test that explanation. Then apply it in the module research task; keep the assumptions and the evidence that could change your answer.
Sources and further reading
- NSE Clearing: equity derivatives margins ↗
- SEBI: expiry-day calendar-spread review, 5 February 2026 ↗
- NSE individual-security derivatives specifications ↗
- MCX Clearing: delivery FAQs ↗
Further-reading references from the curriculum source list. Contract sizes, expiry calendars, settlement references, margin parameters and tax treatment can change; verify the current operative documents for the actual product. Worked figures are illustrative, not current quotes.
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General financial education. No securities recommendation, assured outcome or personal advice. Read the risk disclosures.