How Does a Higher Time to Expiration Generally Affect the Initial Margin Requirement?
A longer time to expiration generally leads to a higher initial margin requirement. This is because the longer time frame allows for greater potential price volatility and movement of the underlying asset, increasing the risk of a significant loss before the contract settles.
The clearing house must cover this increased long-term risk with a larger initial deposit.
Glossar
Higher Initial Margin
Calculation ⎊ Higher initial margin refers to the increased collateral required by a derivatives exchange to open a new leveraged position, calculated based on the perceived risk of the underlying crypto asset and the trade structure.
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.