Calculation of Initial Margin and Maintenance Margin
Understanding how initial and maintenance margins are calculated is a key concept for traders who decide to trade on margin.
Before we get to the calculations, let’s go over these two terms first.
The initial margin is the minimum margin required to open a position.
The maintenance margin is the minimum amount of money you need to maintain a position.
Please note that positions will be liquidated when the margin falls below the maintenance margin level.
Next, let’s take a look at how the initial margin and maintenance margin in USDC options trading are calculated under different option types:
Going long
An option buyer must pay a premium to own a call or put option. The biggest possible loss is the cost of buying the option – the premium paid and the transaction fee.
Buy Call/Put
Cost = Premium + Transaction Fee
Premium = ABS (Order Quantity) × Option Order Price
Transaction fee = (Taker rate × index price, maximum proportion of transaction fee to order price × option transaction price) minimum value × option transaction quantity
Take a call option as an example:
When the BTC index price is $42,000, Trader A places an order of 0.3 BTC BTC-31DEC21-48000-C at $3,500. The minimum margin required to open a position is 1,053.78 USDC, and the formula is as follows:
Cost = 1,050 + 3.78 = 1,053.78 USDC
Premium = 0.3 × 3,500 = 1,050 USDC
Transaction Fee = (0.03% × 42,000, 12.5% × 3,500) Min × 0.3 = 3.78 USDC
Going short
The option seller will receive a premium from the option buyer.
Sell Call/Put
Initial Margin = Position Initial Margin + Transaction Fee – Premium
Position Initial Margin = [(0.15 × Index Price – Out-of-the-Money Option Amount, 0.1 × Index Price) Maximum + (Position Average Price, Option Mark Price) Maximum] × (ABS (Order Quantity), Position Maintenance Margin) Maximum value
Out-of-the-money option amount for call options = (0, strike price – index price) max
Out-of-the-money option amount for put options = (0, index price – strike price) max
Position Maintenance Margin = [(0.03 × Index Price, 0.03 × Option Mark Price) Maximum Value + Option Mark Price + Liquidation Rate × Index Price)] × ABS (Number of New Positions)
Transaction fee = ABS (number of orders) × (Taker rate × index price, the maximum proportion of transaction fee to order price × option order price) minimum value
Premium = ABS (Order Quantity) × Option Order Price
Sell call options – Example
When the BTC index price is $42,000, Trader A has a margin balance of $10,000 and sells BTC BTC-31DEC21-48000-C at a price of $1,000. The current mark price is $1,100.
Calculated as follows︰
Position Maintenance Margin = [(3% × 42,000, 3% × 1,100) + 1,100 + 0.2% × 42,000] Maximum × 0.3 = 733.2 USDC
Maintenance Margin Ratio = 733.2/10,000 = 7.33%
Position Initial Margin = [(0.15 × 42,000 − 3,000, 0.1 × 42,000) + Maximum (1,000, 1,100)]Maximum × (0.3, Position Maintenance Margin) = 1,590 USDC
Transaction Fee = (0.03% × 42,000, 12.5% × 1,000) Min × 0.3= 3.78 USDC
Premium = 0.3 × 1,000 = 300 USDC
Order Initial Margin = 1,590 + 3.78 − 300 = 1,293.78 USDC
Initial Margin Ratio = 1,293.78/10,000 = 12.94%
Sell put options – Example
When the BTC index price is $45,000, Trader B’s margin balance is $10,000, and he places an order of 0.5 BTC BTC-10APR22-42000-P, all at a price of $1,500. The current mark price is $1,600.
Position Maintenance Margin = [(3% × 45,000, 3% × 1,600) + 1,600 + 0.2% × 45,000] Maximum × 0.5 = 1,520 USDC
Maintenance Margin Ratio = 1,520/10,000 = 15.2%
Position Initial Margin = [(0.15 × 45,000 − 3000, 0.1 × 45,000) + Maximum (1,500, 1,600)] × (0.5, 1,520) = 3,050 USDC
Transaction Fee = 0.5 × (0.03% × 45,000, 12.5% × 1,500) Minimum = 6.75 USDC
Premium = 0.5 × 1,500 = 750 USDC
Order Initial Margin = 3,050 + 6.75 – 750 = 2,306.75 USDC
Initial Margin Ratio = 2,306.75/10,000 = 23.07%
In the portfolio margin model, after the order is filled, the initial margin will not be occupied.
Please check Bybit official website or contact the customer support with regard to the latest information and more accurate details.
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April 24, 2024
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