Portfolio Margin
Last updated
Last updated
OptiFi is the first DeFi exchange that utilizes the “Portfolio Margin” approach applied to all instruments for a given underlying asset. This allows OptiFi traders to efficiently combine multiple positions written on a single underlying asset by posting only collateral that is really required to cover the associated risks.
To be more precise, financial instruments linked to BTCUSDC pair on OptiFi will have “risk-sharing” features that enable to “net” the risk between them.
For example, think about selling (short) a 1-week BTC Call with strike price $43,000:
Typically, because a short call position is considered to be risky with potential losses exceeding the premium amount received, a short seller of the positions is required to maintain a minimum margin balance of $6,598 when the BTCUSDC spot price is $38,000. This way the system ensures that if there are any sudden movements in the underlying asset, the call seller can maintain his commitment to the buyer of the call option.
Now consider a case where a trader has both, long AND short positions in 2 different call options with the same maturity:
In this scenario, because the calls are with the same maturity, a maximum net payoff at maturity for the overall portfolio position is +$5,000 (payoff does not consider net premium). When spot price is above $43,000, all the losses on the short position are offset by the gain in the long position.
Hence, a good margin system would consider such positions held by a single trader in a portfolio as “risk-netting” positions and would require a lower margin (collateral) for the trade:
In the table above, we can see that OptiFi margin requirement for such a scenario falls to a bare minimum of just over $1,292. That means OptiFi traders can use their capitals with much more flexibility than ever, especially for complex strategies which may involve computing multiple margin requirements under the same underlying asset.
For instance, the example is a classic Bull Call Spread Strategy - A trader simultaneously buys calls at a specific strike price while also selling the same number of calls at a higher strike price. Both call options will have the same expiration date (1-week in this case) and underlying asset (BTC in this case). This strategy is generally used when a trader is bullish on the underlying asset and expects a moderate rise in the price of the asset.
Using this strategy, the trader is able to limit the upside on the trade while also reducing the net premium to $1,291 (pay $1,489 for the long call position; receive $198 for the short call position), compared to buying a naked call option at $1,489.
