How Does the Net Premium Affect the Maximum Loss Amount?
The net premium directly adjusts the maximum loss calculation. If the options are established for a net credit (premium received), this amount reduces the maximum loss, making the floor more effective.
If established for a net debit (premium paid), this cost is added to the maximum loss, slightly lowering the effectiveness of the floor.
Glossar
Maximum Loss
Value ⎊ Maximum Loss represents the absolute worst-case financial outcome, expressed as a specific monetary value, that a derivatives position can incur over its entire life cycle.
Net Premium
Premium ⎊ The net premium, within the context of cryptocurrency derivatives and options trading, represents the aggregate difference between the total premiums paid and the total payouts received over the lifecycle of a contract.
Net Credit
Balance ⎊ This metric represents the final positive difference between total inflows and total outflows across a series of transactions or over a defined accounting period within a trading strategy.