How does squaring off work in MIS trading?
Scenario 1:-
Buy Options & complete margin utilized for buying options using MIS :-
Available Margin: Rs. 50,000
Margin utilized in Option Premium paid: Rs. 50,000
Buy Options Premium paid : Rs. 50,000
Balance Margin: 0
Cut-off: N/A
Your position will get squared off at 3:20 p.m. as you have chosen order type as MIS while creating position
Scenario 2:-
Buy Options in MIS & MIS cash/futures position is created in (some other underlying in case of futures) with the balance margin:-
Available Margin: Rs. 1,00,000
Margin utilized in Option premium paid: Rs. 30,000
Margin Utilized in MIS: Rs. 70,000
Cash/Futures : Rs. 70,000
Balance Margin: 0
Cut-off: 52,500 (75% * 70,000)
Your all MIS positions i.e. Buy options & Cash/Futures will get squared off when MIS unrealised loss breaches Rs.52,500.
MIS unrealised loss in the above scenario will only be calculated of Cash/Futures positions. However, the positions will be squared off of even the buy options position.
Scenario 3:-
Hedged position in MIS with Options buy is created with the balance margin:-
Available Margin: Rs. 1,00,000
Margin utilized in Option premium paid: Rs. 30,000
Margin Utilized in MIS: Rs. 20,000
Hedge Position Margin (Hedged Futures in same underlying as Options) :- Rs. 20,000
Balance Margin: Rs. 50,000
Cut-off:- Rs. 65,000 (Rs. 50,000 + (75% * Rs. 20,000))
Your all MIS positions i.e. Buy options & Futures will get squared off when MIS unrealised loss breaches Rs.65,000.
MIS unrealised loss in the above scenario will only be calculated of Futures positions. However, the positions will be squared off of even the buy options position.
The above are the basic scenarios for options, however you may create different types of scenarios.