Previously in this column, we discussed how managing a long position in an in-the-money (ITM) index call is different from managing a long position in an ITM equity call when the option approaches expiry. This week, we look at how delivery margins impact the contours of a bull call spread on an index and on an underlying stock.
Delivery margins
All equity options are delivery based whereas index options are cash-settled. Should you keep the position open at expiry, you are required to take delivery of the shares against the long ITM equity call. Your broker does not know whether you will keep your ITM equity option position open till expiry or whether you will close the position earlier. Your broker will levy a delivery margin starting four days before expiry till the expiry date in anticipation of a delivery event. That means you will need large trading capital for keeping equity option positions open as it approaches expiry. So, how does this affect a bull call spread strategy?
A bull call spread involves going long on a lower strike call and short on a higher strike call on the same underlying of the same expiry. Your short strike requires margin, but NSE will offer cross margin benefit on the position as short call is covered by the long call. The delivery margin on the long ITM equity call on the run-up to the expiry could prompt you to close your position before expiry. If you do so, your potential gains will be lower. Note that the maximum gain on your spread position is the difference between the two strikes less the net debit. But that gain can be captured only if you hold the spread position till expiry. If you close the position any time before expiry, the gain will be equal to the difference between the net cash received when you close the position less the net debit.
A bull call spread on the Nifty Index does not suffer from this issue. That is, you do not have to pay delivery margins, as the position is cash-settled. This offers two benefits. One, your trading capital is lower compared to a bull call spread on an equity option, assuming the long leg is ITM in both cases. And two, you can capture the maximum gain on the spread. Also, you do not expose yourself to shortfall risk: the risk that your position will forcibly closed by your broker in the event your trading account does not have enough money to provide for delivery margins.
Optional reading
Traders’ intention is to typically bet on the underlying price movement through options, not to take delivery of the underlying shares. Index options are cash-settled, as the underlying is a basket of stocks that makes it operationally difficult to deliver. Therefore, a bull call spread on an index is operationally efficient to trade compared to that on an equity option.
(The author offers training programmes for individuals to manage their personal investments)
Published on November 8, 2025
