Options trading involves a unique system of margins, which are funds set aside to cover potential risks. The amount of margin required is based on your position tier. This tier is determined by your total open seller positions, open orders, and any new orders you place. Higher tiers come with higher margin factors, meaning you'll need to allocate more funds. For illustration, we'll assume a tier 2 position with a margin factor of 1.02 in the examples below.
What is Order Margin?
Order margin is the collateral required for your open orders. It ensures you have sufficient funds to complete trades and exercise options, including the payment of premiums. This margin is typically converted into a position margin once an order is successfully filled.
Opening New Positions
Buying Call or Put Options (Long Orders)
When you place an order to buy options, the required margin is straightforward. It's calculated based on your order price, the contract multiplier, the trading fee, and the number of contracts.
Formula: Margin = (Order Price × Contract Multiplier + Fee) × Number of Contracts
Example: Assume the BTCUSD index is at $8,500, and you wish to buy 100 call options. The mark price for the "BTCUSD-20200515-8500-C" option is 0.05 BTC, but you place an order at 0.0475 BTC. For a Level 1 user, the maker fee is 0.02%. The fee per contract is 1 × 0.1 × 0.02% = 0.00002 BTC.
Your required margin would be: (0.0475 × 0.1 + 0.00002) × 100 = 0.477 BTC.
Selling Call or Put Options (Short Orders)
Selling options requires a more complex calculation. The system ensures you have enough margin to cover the position's risk, considering the premium you'll receive.
Formula for BTCUSD/ETHUSD: Margin = max( (Position Margin per Contract - (Order Price × Contract Multiplier) + Fee), (Minimum Order Margin × Contract Multiplier) ) × Number of Contracts
Example: Let's say the BTCUSD index is $6,000, and you want to sell 100 call options. The mark price for "BTCUSD-20200327-6000-C" is 0.0575 BTC, and you order at 0.06 BTC. The futures mark price for the same expiry is $5,900, making the Out-of-The-Money (OTM) value $100. The fee per contract remains 0.00002 BTC.
First, calculate the position margin per contract for the call option seller: [max(0.1, 0.15 - (100 / 5900)) × 1.02 + 0.0575] × 0.1 × 1 = 0.01932 BTC.
Then, the required order margin is: max(0.01932 - (0.06 × 0.1) + 0.00002, 0.1 × 0.1) × 100 = 1.334 BTC.
Closing Positions
Selling to Close a Long Position
When you sell an option you own to close the position, the margin calculation is different.
Formula: Margin = max( (Fee - (Order Price × Contract Multiplier)), 0 ) × Number of Contracts
Example: With BTCUSD at $8,500, you sell 100 put options. The mark price for "BTCUSD-20200515-9000-P" is 0.0725 BTC, and your order price is 0.0755 BTC. The fee is 0.00002 BTC per contract.
The required margin is: max(0.00002 - (0.075 × 0.1), 0) × 100 = 0 BTC (since the result is negative, it's set to zero).
Buying to Close a Short Position
To close a short position, you need to buy back the option. The margin required considers your existing position margin.
Formula: Margin = ( max( Order Price - (Position Margin / Contract Multiplier) + Fee, 0 ) × Contract Multiplier ) × Number of Contracts
Example: BTCUSD is at $6,000, and you want to buy 100 call options to close a short. The mark price is 0.0575 BTC, and you order at 0.05 BTC. The futures mark price is $5,900 (OTM = $100). The fee is 0.00002 BTC. Your existing position margin per contract is 0.01932 BTC.
The required margin is: ( max(0.05 - (0.01932 / 0.1) + 0.0002, 0) × 0.1 ) × 100 = 0 BTC.
What is Position Margin?
Position margin is the collateral needed to maintain your current open positions after the orders have been filled.
For the Buyer (Long Position Holder)
The buyer of an option has a maximum risk limited to the premium paid. Therefore, no additional position margin is required after the purchase.
For the Call Option Seller
Sellers face potentially unlimited risk, so a significant position margin is mandatory.
Formula for BTCUSD/ETHUSD: Position Margin = [ max( 0.1, (0.15 - (OTM Value / Same Expiry Futures Mark Price)) ) × Margin Factor + Options Mark Price ] × Contract Multiplier × Number of Positions
Example: You sell 50 call options with BTCUSD at $6,000. The option's mark price is 0.0575 BTC, and the same-expiry futures mark price is $5,900 (OTM = $100).
Position Margin = [ max(0.1, 0.15 - (100 / 5900)) × 1.02 + 0.0575 ] × 0.1 × 50 = 0.96606 BTC.
For the Put Option Seller
The calculation for put sellers is adjusted to account for different risk parameters.
Formula for BTCUSD/ETHUSD: Position Margin = [ max( (0.1 × (1 + Options Mark Price)), (0.15 - (OTM Value / Same Expiry Futures Mark Price)) ) × Margin Factor + Options Mark Price ] × Contract Multiplier × Number of Positions
Example: You sell 100 put options with BTCUSD at $8,600. The option's mark price is 0.0225 BTC, and the futures mark price is $8,640. The strike is $8,500, so OTM = $140.
Position Margin = [ max(0.1 × (1 + 0.0225), (0.15 - (140 / 8640))) × 1.02 + 0.0225 ] × 0.1 × 100 = 1.58972 BTC.
Understanding Out-of-The-Money (OTM) Value
The OTM value is a critical component in risk calculation. It measures how far the current market price is from the option's strike price, indicating the option's intrinsic risk.
- Call Option: If the underlying asset's price is below the strike price, the call is OTM. The OTM value is: Strike Price - Same Expiry Futures Mark Price.
- Put Option: If the underlying asset's price is above the strike price, the put is OTM. The OTM value is: Same Expiry Futures Mark Price - Strike Price.
A larger OTM value means the option is less likely to be exercised, which generally reduces the margin requirement for the seller.
Examples:
- For "BTCUSD-20200925-12000-C" (Strike: $12,000) with futures at $9,725: OTM Value = $12,000 - $9,725 = $2,275.
- For "BTCUSD-20200925-9000-P" (Strike: $9,000) with futures at $9,725: OTM Value = $9,725 - $9,000 = $725.
Note: In all calculations, the options mark price is denominated in BTC, and the "amount of positions" is the absolute value of your open contracts.
What is Maintenance Margin?
Maintenance margin is the minimum equity you must maintain in your account to keep a position open. If your account balance falls below this level, a partial liquidation may be triggered to reduce risk.
For the Buyer (Long Position Holder)
Since the buyer's risk is capped, the maintenance margin is 0.
For the Call Option Seller
The formula focuses on a fixed risk component plus the mark price.
Formula: Maintenance Margin = ( (0.075 × Margin Factor) + Mark Price ) × Contract Multiplier × Number of Positions
Example: You have sold 100 put options. The mark price is 0.0575 BTC.
Maintenance Margin = ( (0.075 × 1.02) + 0.0575 ) × 0.1 × 100 = 1.34 BTC.
For the Put Option Seller
The calculation for puts incorporates the mark price into the fixed risk component.
Formula: Maintenance Margin = ( (0.075 × (1 + Mark Price) × Margin Factor) + Mark Price ) × Contract Multiplier × Number of Positions
Example: You have sold 100 put options. The mark price is 0.0725 BTC.
Maintenance Margin = ( (0.075 × (1 + 0.0725) × 1.02) + 0.0725 ) × 0.1 × 100 = 1.54547 BTC.
Note: As with previous calculations, the mark price is in BTC, and the number of positions is the absolute value.
👉 Explore advanced margin calculation tools
Frequently Asked Questions
What is the difference between order margin and position margin?
Order margin is the collateral locked when you place an order, ensuring you can fulfill the trade. Once the order is filled, this converts into your position margin, which is the collateral required to hold that open position and cover its ongoing risk.
How is the OTM value calculated for a put option?
For a put option, the Out-of-The-Money (OTM) value is calculated by taking the mark price of the same-expiry futures contract and subtracting the option's strike price. This value represents how much the market price would need to fall for the put option to reach the money.
Why is the maintenance margin important?
The maintenance margin is the minimum account balance required to avoid liquidation. If your available balance drops below this level due to unfavorable price movements, the exchange may automatically liquidate part of your position to bring your account back to a safe level.
Do I need to calculate all this manually?
While understanding the formulas is crucial for risk management, most modern trading platforms perform these calculations automatically in real-time. Your trading interface will typically display the required and maintenance margins for your orders and positions. 👉 Get real-time margin calculations
What happens if I don't have enough margin?
If you attempt to place an order without sufficient available balance to cover the initial margin, the order will likely be rejected. If your account equity falls below the maintenance margin after a position is opened, you may face a margin call or automatic liquidation.
How does my position tier affect my margin?
Your position tier is based on your total open risk. Higher tiers indicate a larger overall risk exposure, which necessitates a higher margin factor. This increased factor is applied in the position and maintenance margin formulas, meaning you will need to lock up more collateral for the same position size compared to a lower-tier trader.