The 2% ELM (Extreme Loss Margin) increase means the following:
(a) Impact on Margin Requirement:
A 30-50% rise in the margin required for selling straddles and OTM (Out of the Money) options.
This implies traders will now be able to trade only 2/3 of the previous quantity with the same capital.
profits and losses will also reduce proportionally to 2/3 of what they were earlier, as the position size is smaller.
(b) Margin Shortfall for Carried Positions:
If you hold positions with 1-day-to-expiry (1DTE) and carry them overnight, there will likely be a margin shortfall when the market opens the next day.
(a) Impact on Margin Requirement:
A 30-50% rise in the margin required for selling straddles and OTM (Out of the Money) options.
This implies traders will now be able to trade only 2/3 of the previous quantity with the same capital.
profits and losses will also reduce proportionally to 2/3 of what they were earlier, as the position size is smaller.
(b) Margin Shortfall for Carried Positions:
If you hold positions with 1-day-to-expiry (1DTE) and carry them overnight, there will likely be a margin shortfall when the market opens the next day.
