How Does the Volatility of the Underlying Cryptocurrency Impact the Options Margin Requirement?
Higher volatility increases the probability and potential magnitude of price movements, which directly increases the potential loss on an options position. Therefore, margin models respond to higher volatility by requiring a significantly larger Initial Margin.
This is because the risk of the option expiring deep in or out of the money, or requiring a larger hedge adjustment, is greater.
Glossar
Margin Models
Calibration ⎊ Margin models, within cryptocurrency and derivatives, function as quantitative frameworks for determining appropriate risk-adjusted capital allocations against potential losses stemming from market exposures.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Options Pricing
Model ⎊ Options pricing refers to the quantitative methods used to determine the fair value of a derivatives contract based on various market inputs.
Options Margin
Collateral ⎊ Options margin within cryptocurrency derivatives represents the pledged assets securing obligations arising from options contracts.