---
title: "Option Book Risk: Scenarios, Stress, VaR and ES"
description: "A risk report for an option book: Greeks, scenario grids, stress tests, VaR and expected shortfall, and the margin shocks that arrive with them, on dated data."
source_url: "https://www.rupeecase.com/learn/path-17/module-17-23-option-book-risk"
---

[Path 17 23 of 23](/learn/path-17/)Risk for option books: scenarios, stress, VaR, ES and margin shocks[Path 17](/learn/path-17/)

On Wednesday 10 Jun 2026 a sold Nifty strangle on the 30 Jun expiry, a 22,950 put and a 23,550 call, took in Rs 389.60 a unit, which is Rs 25,324 a lot. Its net delta was 0.0 units a lot, so a report that reads only delta would show almost nothing at risk. A one day move of 99% size, 512 index points either way on that day's implied volatility, takes about Rs 7,805 off the position through gamma, while delta explains only Rs 11 of it. That is the whole subject: a book can be flat on one measure and exposed on the next, so a risk report needs several. This module is education about measuring risk. It is not a position, a limit for anyone's account, or a view on any contract.

3By the end you can

1. Say what each layer of a risk report answers: Greeks, scenario grid, stress, [VaR](/learn/glossary#var) and ES, margin and limits.
2. Compute a parametric VaR and ES, and show why delta alone understates an option book.
3. Read a margin shock as VaR that moves with volatility, and size a buffer against it.

Watch in the terminal: which numbers am I looking at? A short tutorial on sample data.

## The idea, plainly

### What does a risk report for an option book hold?

Six layers, each answering a different question. None replaces the others, and the order runs from the quick and local to the slow and complete.

A risk report is a ladder: slopes, full reprices, stress, statistics, margin and limits

A method map, with no market figures. Each layer catches what the one before it cannot. Source: RupeeCase method map, no market data. As of 17 Oct 2026.

* **Greeks:** how value changes for a small move.

* **Scenario grid:** how value changes for a big move, with every option repriced.

* **Stress:** a named event, replayed.

* **VaR and ES:** how large a bad day is, in probability terms.

* **Margin:** what the clearing house demands, which is itself a risk number.

* **Limits:** the numbers that stop trading, written before the position.

### Why do Greeks mislead on a big move?

A Greek is a slope at one point. Delta is the slope of value against the index, gamma is how fast that slope changes. A sold strangle starts near delta neutral, so a delta based report shows almost no risk, while gamma is large and negative: every point of movement makes the position more exposed in the same direction.

* Delta of the strangle: 0.0 units a lot. Gamma: −0.060 units of delta a point.

* Vega: −2,627 rupees a lot for each point of implied volatility. Theta: 975 rupees a lot a day, the income side.

The estimate that adds the three slopes, delta times the move plus half gamma times the move squared plus vega times the volatility change, is only good for moves small enough that the slopes hold.

### How do Greeks add up across a whole book?

A book is many positions, so each Greek is summed across strikes and expiries, and the sum hides structure. A short near expiry option and a long far expiry option can net to zero vega and still lose when the front of the curve moves alone.

Watch in the terminal: what do hit rate, payoff and expectancy mean? A short tutorial on sample data.

* **By expiry:** report vega and gamma in buckets, not as one total.

* **By strike:** a wing and a body can offset in delta and differ in gamma.

* **By underlying:** a Nifty book and a stock book are different risks, and their moves are only partly linked.

### What does the scenario grid show?

The grid reprices every option for a move in the index and a shift in implied volatility, so it needs no slope. One day later, a rise of five points in volatility on top of a fall of three per cent is a cell the Greeks ladder cannot see.

The edges of the grid lose most, and a volatility rise adds to every cell

| Index move | After one day, Rs a lot |
| --- | --- |
| IV same | IV +5 | IV +10 |
| −6% | −48,240 | −52,412 | −58,791 |
| −3% | −13,161 | −22,829 | −33,792 |
| 0% | +976 | −12,015 | −25,290 |
| +3% | −12,952 | −23,350 | −34,945 |
| +6% | −47,500 | −52,632 | −60,127 |

Green is profit and red is loss; deeper colour means a larger amount. The outlined cell is the starting point.

The sold 22,950 put and 23,550 call repriced with Black 76 one day after 10 Jun 2026. Index moves are shares of the future. Columns add to every leg's implied volatility. The first column holds volatility unchanged. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
One day on, the curve is still smooth; at expiry the kinks bite

One lot of the sold 22,950 put and 23,550 call on the 10 Jun 2026 chain of the 30 Jun expiry, at expiry and with the time value of one day on. Before costs. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
Read one more paragraph, 44 words
Read the first column down and the loss grows faster than the move: that is gamma. Read across a row and the loss grows with volatility: that is vega. The corner cell is the two together. No row of the Greeks ladder holds it.

### What are VaR and ES?

Value at risk answers a narrow question: what loss is exceeded on only one day in a hundred? Expected shortfall, ES, asks how large the losses are on those worst days, on average. VaR is a threshold, ES is the average beyond it.

* **Parametric:** assume moves follow a normal curve with a stated volatility. Quick, and thin in the tails.

* **Historical:** use the past moves themselves. No curve, but only as rich as the sample.

* **Simulation:** draw moves from a stated model and reprice. Handles options, and is as good as the model.

The maths: parametric VaR and ES
Daily vol = annual vol
over root of 252
VaR = 2.326 x daily vol
x position size
ES = 2.665 x daily vol
x position size

For a normal curve the 99% point is 2.326 standard deviations and the average beyond it is the density at that point over one per cent, 2.665 standard deviations. A holding period of n days scales volatility by the root of n. These formulas size a position that moves one for one with the index. An option book does not, so the same formulas applied to delta alone give Rs 11 for the strangle, against Rs 7,805 once gamma is added.

Read one more paragraph, 40 words
With the ATM implied volatility of 15.0% on 10 Jun 2026, one day's standard move is 220 points, or 0.95%. A 99% one day move is 512 points under the normal curve and the ES move is 586.

### How few observations sit behind a historical VaR?

The NSE file of Nifty closes holds 299 daily returns, so the worst one per cent is about 3 days. A 99% historical VaR is near the third worst day of that file, and ES the average of the three worst. Both are one lucky or unlucky run from moving. The cone shows another effect: the volatility measured on a short window swings widely, so the window chosen is itself a choice.

The shorter the window, the wider the swing in measured volatility

Close to close realised volatility on rolling windows from ten to one hundred and twenty sessions, ending 15 Sep 2026. The band runs from the lowest to the highest reading in the file. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026.

### What does a stress test add?

A stress test replays a named event, whatever its probability. The question is no longer how likely it is, but whether the position, the margin and the account survive it. India VIX closed at 22.79 on 7 Apr 2025, a stress session, against 15.63 on 10 Jun 2026.

* If every option's implied volatility rose by that gap, 7.16 points, the strangle's vega of 2,627 rupees a point would take about Rs 18,808 a lot off the value.

* The loss arrives before the index moves, and before any exit price is on the screen.

* A scheduled gap, such as a Budget session, is a stress test written in the calendar.

### What do margin shocks do?

NSE Clearing's page says its initial margin requirements are based on 99% value at risk over a one day horizon, and that it computes them with SPAN, a portfolio based system. Extreme loss margin is added: 2% of notional for index derivatives. So margin is itself a VaR number, and it moves with volatility. When volatility rises, the loss on a short option and the margin on it rise together.

India VIX ran from 9.2 to 27.9, so margin on short options moved with it

Percent. India VIX daily close, 1 Jul 2025 to 15 Sep 2026. Margin is recomputed on risk parameters, so a rise in volatility can lift the requirement while a position is open. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026.

* On expiry day SEBI's circular of 1 Oct 2024 adds 2% of extreme loss margin on short options expiring that day, from 20 Nov 2024: Rs 31,186 a lot at the index level on 16 Jun 2026.

* From 1 Feb 2025 a calendar spread has no margin benefit on the expiry day of the contract expiring that day.

* Option premium payable is collected upfront from 1 Feb 2025.

The practical reading: a buffer that covers only today's requirement does not survive a volatility spike, so the buffer is sized against the shocked margin.

### Where does liquidity belong in the report?

A reprice uses a settlement price, and a settlement price is not a price anyone offered. On a stress day the bid ask spread widens and far strikes may have no bid at all. A report that values a position at settlement and assumes a free exit is optimistic by the cost of leaving.

* Add a haircut scenario: exit each leg at a stated number of rupees worse than settlement.

* Prefer limits that need no exit, such as a smaller size or a bought wing, since a wing caps the worst cell without a trade.

* Look at contracts traded, not only open interest, before assuming a strike can be closed.

### How do limits close the loop?

* **Scenario limit:** the worst cell of the grid is capped at a stated share of capital, before the trade is placed.

* **Greek limits:** bounds on gamma and vega, not only delta, since delta can be zero while the others are not.

* **Margin buffer:** spare capital above the requirement, tested against a volatility shock.

* **Loss rule:** a drawdown that stops new risk, written down before the first position.

Two terms to hold on to from 17.23

From the module glossary. Source: Module 17.23, Risk for option books: scenarios, stress, VaR, ES and margin shocks.

## Worked example: one strangle through the whole report

The position is one lot of 65 units of the sold 22,950 put and 23,550 call, on the 10 Jun 2026 chain, 20 days to expiry.

1. **Credit.** Rs 389.60 a unit, Rs 25,324 a lot, before costs.

2. **Greeks.** Delta 0.0 units, gamma −0.060 a point, vega −2,627 a point, theta 975 a day, all per lot.

3. **Parametric VaR on delta.** Delta times the 99% move: Rs 11. A report that stops here shows no risk.

4. **Delta and gamma.** Half gamma times the move squared: Rs 7,805. That is the gamma loss on a 512 point move.

5. **Volatility.** The vega effect of a rise by the VIX gap of 7 Apr 2025: Rs 18,808.

6. **Scenario grid.** The corners of the grid above, a move of six per cent with a volatility rise of ten points, are the stress the account must survive, not the average case.

7. **Margin.** The requirement is a 99% one day VaR plus extreme loss margin of 2% of notional, and it grows if volatility rises.

The estimates agree on direction and disagree on size. Delta says nothing, the delta and gamma estimate says thousands, and the grid says more at the edges. A risk process uses the largest honest number, not the most comfortable.

Appendix: what these numbers leave out
Costs and slippage, the bid ask spread on far strikes, and the exact way NSE Clearing's SPAN parameters change from day to day are not in this example. Black 76 prices use each strike's own implied volatility from the settlement price, and a real repricing would also move the skew. Treat every figure as a scale, to be rerun on current data by whoever holds the position.

Worked example: one strangle through the whole report, in 7 steps

The list in this section, as a sequence. Source: Module 17.23, Risk for option books: scenarios, stress, VaR, ES and margin shocks.

## The common mistake

The claim: My VaR is small, so my loss cannot be large. VaR is a threshold on one day in a hundred. It says nothing about how much worse the worse days are, and for an option book computed from delta it can be near zero while the position loses thousands on a gap. ES asks the next question, and the grid and the stress test ask the one after. SEBI's Aug 2026 study found 87.7% of individual F&O traders lost money in FY26, counted by trader, not by structure, and it does not rate any one position. Start the report with the largest cell, not the average.

## Key takeaways

* A flat delta can hide large gamma and vega risk.
* A scenario grid reprices every option, so it holds for big moves.
* VaR is a threshold. Expected shortfall averages the days beyond it.
* A historical VaR at the top one per cent rests on very few observations.
* NSE Clearing margin rests on a one day VaR, so it rises with volatility.
* Write the largest honest loss first, and a buffer above margin.

The term this section turns on: Scenario grid

From the module glossary; every term is in the Learn glossary too. Source: Module 17.23, Risk for option books: scenarios, stress, VaR, ES and margin shocks.
**Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html)

What does Risk for option books: scenarios, stress, VaR, ES and margin shocks cover?A sold strangle can look flat on delta and still lose thousands on a gap. Six layers of a report catch what each one misses. It works through The idea, plainly, Worked example: one strangle through the whole report, The common mistake, Key takeaways. It is module 17.23 of Path 17, Strategies and Hedging, about 11 minutes of reading, free.

TTry it

## Scenario grid, on the same example.
A position repriced over spot, IV and days, beside what the Greeks estimate and what they miss. Dated NSE end of day data, nothing live, no orders.

**Scenario grid**, Nifty, 10 Jun 2026, 30 Jun 2026 expiry.

[Open the scenario grid](/learn/tools/scenario-grid?chain=NIFTY_2026-06-10_2026-06-30)

  AF&O on RupeeCase

## Hedging only, in development
F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet.

  [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup)

  [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging)

QQuick check

## 10 questions, 7 to pass.
Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 17 certificate.

7 of 10 correct passes module 17.23

Every answer is explained when you check; a retake is always free. Source: RupeeCase Learn quiz rules (70% to pass).

  Passed

###

  Certificate ID

Download PNGPrint or save as PDF[Check the ID](/learn/certificates/verify)
Self paced and unproctored. A record of completing free education by RupeeCase; not a NISM certificate and not endorsed by NISM, NSE, BSE or SEBI. It qualifies no one to deal, advise or publish research.

17Path test

## 30 questions. 21 correct earns the certificate.

30 questions drawn from the 350 in the banks of the 23 live modules of Path 17, 17.1 to 17.23, a fresh set each attempt, with no timer. Your score stays on this device.

* **30**questions
* **21**to pass (70%)
* **23**modules covered

Start the testOnly the path test decides the path certificate. The module quizzes are optional: pass them too for each module's own certificate and a tick on every stop.

  Passed

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  Certificate ID

Download PNGPrint or save as PDF[Check the ID](/learn/certificates/verify)Retake the test
[All your certificates, and the master certificate](/learn/certificates)

CCheck yourself

## Path 17 so far.
Your quick check results on this device, stop by stop.

Stop 23 of 23 on Path 17

Strategies and Hedging: every live stop, this module ringed. Source: RupeeCase Learn, Path 17.

1. [17.1Reading and building payoff diagramsNot yet](/learn/path-17/module-17-1-payoff-diagrams)
2. [17.2Vertical debit spreads: bull call and bear putNot yet](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)
3. [17.3Covered call, protective put and cash secured putNot yet](/learn/path-17/module-17-3-covered-call-and-protective-put)
4. [17.4Why and when to hedge: insurance in plain numbersNot yet](/learn/path-17/module-17-4-why-hedge)
5. [17.5Straddles and strangles, long and shortNot yet](/learn/path-17/module-17-5-straddles-and-strangles)
6. [17.6Credit spreads: bull put and bear callNot yet](/learn/path-17/module-17-6-credit-spreads)
7. [17.7Iron condor and iron fly on NiftyNot yet](/learn/path-17/module-17-7-iron-condor-and-iron-fly)
8. [17.8Butterflies and broken wing butterfliesNot yet](/learn/path-17/module-17-8-butterflies)
9. [17.9Option calendar spreadsNot yet](/learn/path-17/module-17-9-option-calendar-spreads)
10. [17.10Choosing a strategy by view: direction, volatility and timeNot yet](/learn/path-17/module-17-10-strategy-by-view)
11. [17.11Adjustments: what they really do to riskNot yet](/learn/path-17/module-17-11-option-adjustments)
12. [17.12Expiry day: gamma, theta, settlement and the rulesNot yet](/learn/path-17/module-17-12-expiry-day)
13. [17.13Hedging a stock portfolio with Nifty putsNot yet](/learn/path-17/module-17-13-hedging-with-nifty-puts)
14. [17.14Collars and put spreads as cheaper hedgesNot yet](/learn/path-17/module-17-14-collars-and-put-spreads)
15. [17.15Hedging mutual fund portfolios: beta and basisNot yet](/learn/path-17/module-17-15-hedging-mutual-fund-portfolios)
16. [17.16Ratio spreads and backspreadsNot yet](/learn/path-17/module-17-16-ratio-spreads-and-backspreads)
17. [17.17Diagonals and double calendarsNot yet](/learn/path-17/module-17-17-diagonals-and-double-calendars)
18. [17.18P&L attribution by GreeksNot yet](/learn/path-17/module-17-18-pnl-attribution-by-greeks)
19. [17.19Event hedging with event varianceNot yet](/learn/path-17/module-17-19-event-hedging)
20. [17.20Tail hedging and long dated Nifty optionsNot yet](/learn/path-17/module-17-20-tail-hedging)
21. [17.21Hedging an option selling book: wings, vega, gaps and margin stressNot yet](/learn/path-17/module-17-21-hedging-an-option-selling-book)
22. [17.22Kelly and sizing for option strategiesNot yet](/learn/path-17/module-17-22-kelly-sizing)
23. [17.23Risk for option books: scenarios, stress, VaR, ES and margin shocksNot yet](/learn/path-17/module-17-23-option-book-risk#quiz)
24. [TPath test, 30 questionsNot yet](/learn/path-17/module-17-23-option-book-risk#pathTestSection)

Path 17 in reading time: 215 minutes over 23 modules

Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 17.

    Explore next

## Put the module to work.

* [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder)
* [Free module 12.5Margins without jargon: SPAN, exposure, expiry day margin and upfront premium8 min read](/learn/path-12/module-12-5-fo-margins-explained)
* [Free module 14.14Position Greeks for multi leg strategies9 min read](/learn/path-14/module-14-14-position-greeks)
* [Free module 17.18P&L attribution by Greeks11 min read](/learn/path-17/module-17-18-pnl-attribution-by-greeks)
* [Free module 17.21Hedging an option selling book: wings, vega, gaps and margin stress11 min read](/learn/path-17/module-17-21-hedging-an-option-selling-book)
* [Free module 17.20Tail hedging and long dated Nifty options10 min read](/learn/path-17/module-17-20-tail-hedging)

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SSources

## Go to the source.
6 sources, NSE the most cited

The publisher of each source listed below. Source: Module 17.23 source list.
1. [NSE Clearing, equity derivatives margins: SPAN, initial margin and extreme loss margin](https://www.nseclearing.in/risk-management/equity-derivatives/margins) NSE
2. [SEBI circular, measures to strengthen the equity index derivatives framework for increased investor protection and market stability (1 October 2024)](https://www.sebi.gov.in/legal/circulars/oct-2024/measures-to-strengthen-equity-index-derivatives-framework-for-increased-investor-protection-and-market-stability_87208.html) SEBI
3. [NSE, Nifty 50 derivatives contract specifications](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE
4. [SEBI, Profitability of Individual Traders in the Equity Derivatives Segment, FY25 to FY26 (August 2026)](https://www.sebi.gov.in/sebi_data/attachdocs/aug-2026/1787233506209.pdf) SEBI
5. [Rockafellar, R. T. and Uryasev, S., Optimization of Conditional Value at Risk, Journal of Risk, 2000](https://doi.org/10.21314/JOR.2000.038) Paper
6. Hull, J., Options, Futures, and Other Derivatives, Pearson (risk measures for option portfolios) Book

GTerms

## 5 terms from this module.
[Value at risk](/learn/glossary#var)The loss that is exceeded on only a stated share of days, for a stated horizon. At ninety nine percent over one day it is the loss exceeded on one day in a hundred.
[Expected shortfall](/learn/glossary#cvar)The average loss on the days that are worse than the value at risk threshold. It looks inside the tail that VaR only marks.
Scenario gridA table of full reprices of a position for chosen moves in the index and shifts in implied volatility. It needs no Greeks, so it holds for large moves.
SPANStandard Portfolio Analysis of Risk, the portfolio based margining system NSE Clearing uses. Its initial margin is based on ninety nine percent value at risk over a one day horizon.
Extreme loss marginMargin on top of SPAN for losses beyond the usual range. For index derivatives it is two percent of notional, with a further two percent on short options expiring that day.
[All 230 terms in the glossary](/learn/glossary)

[Related module12.5 Margins without jargon: SPAN, exposure, expiry day margin and upfront premium8 min, Beginner](/learn/path-12/module-12-5-fo-margins-explained)[Related module14.14 Position Greeks for multi leg strategies9 min, Intermediate](/learn/path-14/module-14-14-position-greeks)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives)

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.