Premium and Performance Margin

Premium

In options trading, the options buyer has to pay premium to the seller to hold long positions. The premium is quoted in USDT.

Premium = Options transaction price* Buy quantity(cont)* Options face value

  • Two cases for the payment of premium:
  1. Buy call or put options to open long positions
  2. Buy call or put options to close short positions

Payment of premium = Options buy price * Buy quantity (cont)* Face value

  • Two cases for the receipt of premium:
  1. Sell call or put options to open short positions
  2. Sell call options or put options to close long positions

Receipt of premium = Options sell price * Sell quantity (cont)* Face value

Example: Alex bought 1000 conts of BTC call options at the price 50 USDT (the face value for each contract is 0.001 BTC), therefore the premium he had to pay is 50*1000*0.001 = 50 USDT. Later Alex sold 1000 conts of BTC call options at the price 60 USDT, then the premium he can receive is 60*1000*0.001=60 USDT when the order is filled.

 

Performance Margin

In option trading, except for receiving premium, options sellers are required to freeze performance margin to hold short positions.

  • Options sellers are required to freeze performance margin when selling call or put options to open positions:
  1. Sell call options to open short positions: Frozen margin for opening positions= Opening quantity(cont) * Face value * Margin ratio;
  2. Sell put options to open positions: Frozen margin for opening positions= Opening quantity(cont) * Face value * Margin ratio* Strike price
  • The performance margin will be released to the seller’s account if the seller buy call or put positions to close short positions
  1. Buy call options to close positions: Unfrozen performance margin = Closed quantity (cont) * Face value *Margin ratio
  2. Buy put options to close positions: Unfrozen performance margin= Closed quantity (cont) * Face value *Margin ratio* Strike price

Note: currently the margin ratio for options trading is 100%.

 

Examples

  1. Alex sold 1000 conts BTC call options with strike price 9800 USDT to open a position (the face value for each contract is 0.001 BTC), then the performance margin required for opening the position is 1000 * 0.001 * 100% = 1 BTC
  2. Alex sold 1000 conts BTC put options with strike price 9800 USDT to open a position (the face value for each contract is 0.001 BTC), then the performance margin required for opening the position is 1000 * 0.001 * 100%* 9800 = 9800 USDT

 

 

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