How Does Margin Requirement Relate to Selling Crypto Options?
When selling (writing) crypto options, a margin requirement is typically imposed by the exchange, especially for "naked" positions (uncovered calls or puts). Margin is a form of collateral that the seller must deposit to cover potential losses.
The margin amount is calculated based on the option's risk profile, the underlying asset's volatility, and the exchange's risk parameters. It ensures the seller can fulfill their obligation if the option is exercised against them.
Glossar
Selling Crypto
Liquidation ⎊ Forced liquidation, a severe form of selling crypto, occurs when a leveraged position's margin falls below the maintenance threshold, triggering an automatic, often market-disrupting, sale of the underlying collateral.
Margin Requirement
Collateralization Standard ⎊ Margin Requirement is the minimum amount of collateral, expressed as a percentage of the notional value, that a trader must deposit to open or maintain a leveraged derivatives position, ensuring the exchange has a buffer against adverse price movements.