In Options, How Is the Leverage Calculated without a Formal Margin Account Structure?
Options leverage is calculated by dividing the percentage change in the option's price by the percentage change in the underlying asset's price. This is often approximated by the option's Delta multiplied by the ratio of the underlying asset price to the option price.
Since the premium is small relative to the asset value, the percentage change in the option price is highly magnified, demonstrating high leverage.
Glossar
Percentage Change
Calculation ⎊ The fundamental method for quantifying movement involves dividing the difference between the final and initial price by the initial price, then multiplying by one hundred for standardization.
Margin Account
Leverage ⎊ A margin account in cryptocurrency, options, and derivatives trading represents an equity-backed loan from a broker, enabling traders to control a larger position than their available capital would otherwise permit.
Underlying Asset Price
Valuation ⎊ The underlying asset price in cryptocurrency derivatives represents the current market consensus of an asset’s worth, serving as the foundational input for pricing options and futures contracts.