How Is Initial Margin Calculated for a Portfolio of Options Contracts?
Margin is typically calculated using a risk-based portfolio approach, such as the SPAN system. This system simulates various market scenarios, including changes in the underlying price and volatility.
The margin requirement is the largest loss the portfolio would incur under these defined stress scenarios. This accounts for offsets between long and short positions.
Glossar
Margin Model
Calibration ⎊ Margin models, within cryptocurrency derivatives, function as quantitative frameworks establishing initial and maintenance requirements for positions; these requirements directly influence leverage and risk exposure for traders operating in volatile markets.
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.
Underlying Price
Asset ⎊ The underlying price, within cryptocurrency derivatives and options trading, represents the current market value of the reference asset upon which a derivative contract is based.
Non-Standard Assets
Valuation ⎊ Non-Standard Assets, within cryptocurrency and derivatives, represent instruments lacking readily available market prices or established valuation methodologies, necessitating model-dependent assessments.
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.
Options Margin
Collateral ⎊ Options margin within cryptocurrency derivatives represents the pledged assets securing obligations arising from options contracts.