In Options Trading, How Does Netting Affect the Calculation of Initial Margin?

Netting allows traders to offset the risk of various options positions within a portfolio, reducing the overall exposure. For instance, a long call option and a short call option on the same underlying asset can be netted to reduce the overall risk calculation.

This results in a lower initial margin requirement compared to calculating the margin for each position in isolation. The netting process recognizes the correlation and hedging effect between positions.