Comparison of Spread Strategies in Cross Margin and Portfolio Margin

Bull/Bear spreads are an Options strategy implemented by purchasing Call/Put Options, while also selling the same number of Calls/Puts on the same asset with the same expiration date at a higher/lower strike price.

Let's take trading a Bear Put spread as an example:

Suppose the price of BTC is $20,250. Trader A buys the following two Put Options:

 

 

Let's take a look at the difference between the maintenance margin required by trading the same investment portfolio in the cross margin and portfolio margin modes.

 

 

 

Cross Margin

In the cross-margin mode, traders need to pay premiums for buying Options, while a seller of Options can receive the premium paid by the buyer. However, the seller's USDC Derivatives account will be occupied with the corresponding margin.

 

 

*The maintenance margin required to sell BTC-22JUL22-18500-P is calculated as follows:

Position MM = [Maximum (0.03 × 20,250, 0.03 × 290) + 290 + 0.2 % × 20,250] × 1 = 938 USDC

Position IM = Maximum [(Maximum (0.15 × 20,250 − (20,250 − 18,500), 0.1 × 20,250) + Maximum (280, 290) × 1), Position MM] = 2,315 USDC

 

The total occupied initial margin in cross margin mode is 2,315 USDC. Therefore, when a trader uses a spread strategy to trade Options in the cross margin, the funds occupied are often close to the margin pledged by selling Options.

For more information, please refer to Initial Margin and Maintenance Margin Calculations (Options).

 

 

 

 

 

 

 

 

Portfolio Margin

Under the Portfolio Margin, the required maintenance margin is calculated based on the Maximum Loss and Contingency Component.

• The Risk Parameter, Preset Price Range of Underlying and the Preset Volatility Percentage of each Option are displayed in the table below:

 

 

 

Taking BTC-Options as an example, let's take a look at the profit and loss for the preset 33 scenarios.

 

 

The calculation is as follows:

Maximum Loss = ABS [min (P&L) ] = 434.65 USDC

Contingency Component = 0

Position Maintenance Margin (MM) = 434.65 USDC

Position Initial Margin (IM) = 434.65 × 1.2 = 521.58 USDC

• Risk Factor = 1.2*

*Please note that risk factor adjustments may be made under extreme market conditions.

 

The total occupied initial margin in portfolio margin mode is 521.58  USDC. 

 

The example above demonstrates that when trading the same bear put spread, the capital occupied in the cross margin is 2,795 USDC, while in the portfolio margin it only occupies 1,001.58 USDC. This means that when trading on portfolio margin, margin requirements will be significantly reduced with enhanced capital efficiency.