Why Do Options Contracts on Volatile Crypto Assets Often Have Higher Margin Requirements?
Higher asset volatility means there is a greater probability of significant price movements, leading to larger potential losses for the option writer. Margin requirements are designed to cover these potential worst-case losses.
Therefore, to ensure the option writer can meet their obligation upon exercise, the clearing house must demand a larger collateral cushion, or margin, proportional to the asset's volatility.
Glossar
Higher Margin
Leverage ⎊ Higher margin profiles in cryptocurrency derivatives necessitate a nuanced understanding of leverage mechanics, particularly concerning initial and maintenance margin requirements across exchanges.
Margin Requirements
Definition ⎊ Margin requirements refer to the minimum amount of capital an investor must deposit and maintain with a broker or exchange to open and sustain a leveraged position in derivatives trading.
Volatile Crypto Assets
Volatility ⎊ Volatile crypto assets represent a class of digital assets characterized by significant price fluctuations over short periods, demanding sophisticated risk management strategies.