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    Comparison of Spread Strategies in Cross Margin and Portfolio Margin
    bybit2024-10-23 09:28:30

    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:

     

    Contracts

    Qty

    Entry Price

    Mark Price

    BTC-22JUL22-18500-P

    −1

    280

    290

    BTC-22JUL22-20000-P

    1

    760

    750

     

    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.

     

    Contracts

    Direction

    Premium

    Maintenance Margin Required

    BTC-22JUL22-18500-P

    Sell

    −280 USDC

    2,315 USDC*

    BTC-22JUL22-20000-P

    Buy

    760 USDC

    -

     

    *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:

     

    BTC-Options

    ETH-Options

    Risk Parameter 


    15%


    15%

    Preset Price Range

    (0, ± 3%, ± 6%, ±9%, ±12%, ±15%)

    (0, ±3%, ±6%, ±9%, ±12%, ±15%)

    Preset Volatility Percentage 


    (-28%, 0%, 33%)


    (-28%, 0%, 33%)

     

     

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

     

    Preset Price Percentage and Preset Volatility Percentage

    Total P&L 

    BTC-22JUL22-18500-P

    BTC-22JUL22-20000-P

    -15%

     ( −28%, 0%, 33%)

    625.7977

    −1,684.48

    2,310.27

    963.6231

    −1,087.65

    2,051.27

    782.9313

    −1,335.70

    2,118.63

    −12%

     ( −28%, 0%, 33%)

    644.5096

    −937.9115

    1,582.42 

    510.8202

    −1,326.74

    1,837.56 

    833.5652

    −622.7477

    1,456.31

    −9%

     ( −28%, 0%, 33%)

    628.6553

    −261.0196

    889.6749

    484.2928

    −607.9572

    1,092.25

    391.1666

    −1,016.33

    1,407.50

    −6%

     ( −28%, 0%, 33%)

    271.8561

    −751.9431

    1,023.80

    370.5319

    −11.2155

    381.7475

    314.7622

    −345.7032

    660.4654

    −3%

     ( −28%, 0%, 33%)

    149.5752

    −146.0243

    295.5996

    157.4447

    −530.7827

    688.2275

    106.6142

    140.39

    −33.7758

    0%

     ( −28%, 0%, 33%)

    −115.2825

    221.0102

    −336.2927

    0.386

    −0.2897

    0.6758

    51.5862

    −348.9699

    400.5561

    3%

     ( −28%, 0%, 33%)

    −43.1967

    −201.9633

    158.7666

    −270.5241

    258.6409

    −529.165

    −125.25

    101.7985

    −227.0486

    6%

     ( −28%, 0%, 33%)

    −224.4368

    170.5557

    −394.9925

    −125.541

    -84.9558

    −40.5852

    −361.9054

    274.1293

    −636.0347

    9%

     ( −28%, 0%, 33%)

    −407.646

    279.7855

    −687.4316

    −298.2092

    215.1668

    −513.376

    −195.1191

    6.8006

    −201.9197

    12%

     ( −28%, 0%, 33%)

    −252.4224

    77.7567

    −330.1791

    −427.3147

    281.631

    −708.9458

    −350.1354

    243.1088

    −593.2443

    15%

     ( −28%, 0%, 33%)

    −384.8663

    260.0402

    −644.9065

    −298.5118

    131.9132

    −430.4251

    −434.6519

    282.1728

    −716.8248

     

    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.

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

    Preset Price Percentage and Preset Volatility Percentage

    Total P&L 

    BTC-22JUL22-18500-P

    BTC-22JUL22-20000-P

    -15%

     ( −28%, 0%, 33%)

    625.7977

    −1,684.48

    2,310.27

    963.6231

    −1,087.65

    2,051.27

    782.9313

    −1,335.70

    2,118.63

    −12%

     ( −28%, 0%, 33%)

    644.5096

    −937.9115

    1,582.42 

    510.8202

    −1,326.74

    1,837.56 

    833.5652

    −622.7477

    1,456.31

    −9%

     ( −28%, 0%, 33%)

    628.6553

    −261.0196

    889.6749

    484.2928

    −607.9572

    1,092.25

    391.1666

    −1,016.33

    1,407.50

    −6%

     ( −28%, 0%, 33%)

    271.8561

    −751.9431

    1,023.80

    370.5319

    −11.2155

    381.7475

    314.7622

    −345.7032

    660.4654

    −3%

     ( −28%, 0%, 33%)

    149.5752

    −146.0243

    295.5996

    157.4447

    −530.7827

    688.2275

    106.6142

    140.39

    −33.7758

    0%

     ( −28%, 0%, 33%)

    −115.2825

    221.0102

    −336.2927

    0.386

    −0.2897

    0.6758

    51.5862

    −348.9699

    400.5561

    3%

     ( −28%, 0%, 33%)

    −43.1967

    −201.9633

    158.7666

    −270.5241

    258.6409

    −529.165

    −125.25

    101.7985

    −227.0486

    6%

     ( −28%, 0%, 33%)

    −224.4368

    170.5557

    −394.9925

    −125.541

    -84.9558

    −40.5852

    −361.9054

    274.1293

    −636.0347

    9%

     ( −28%, 0%, 33%)

    −407.646

    279.7855

    −687.4316

    −298.2092

    215.1668

    −513.376

    −195.1191

    6.8006

    −201.9197

    12%

     ( −28%, 0%, 33%)

    −252.4224

    77.7567

    −330.1791

    −427.3147

    281.631

    −708.9458

    −350.1354

    243.1088

    −593.2443

    15%

     ( −28%, 0%, 33%)

    −384.8663

    260.0402

    −644.9065

    −298.5118

    131.9132

    −430.4251

    −434.6519

    282.1728

    −716.8248

     

    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 regular 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.

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