How Does the Calculation Change for Non-Linear Derivative Contracts like Options?
For non-linear derivatives like options, margin calculation is much more complex than for linear futures. It involves calculating the maximum potential loss based on the option's 'Greeks' (Delta, Gamma, Vega, Theta), which measure the sensitivity to price, volatility, and time.
The exchange often uses a sophisticated risk model, like a portfolio margin system, to determine the margin, rather than a simple leverage-based percentage.
Glossar
Maximum Potential Loss
Exposure ⎊ Maximum Potential Loss (MPL) within cryptocurrency, options trading, and financial derivatives represents the theoretical worst-case financial detriment an investor could incur from a specific position or portfolio.
Non-Linear Derivatives
Derivation ⎊ Non-linear derivatives, within the context of cryptocurrency, options trading, and broader financial derivatives, represent pricing models and analytical techniques that deviate from the assumptions of linearity inherent in models like Black-Scholes.