OptiFi
  • Welcome to OptiFi
  • Key Innovations
  • Roadmap
  • 🎯OptiFi in Depth
    • Margin Requirements
      • Portfolio Margin
      • Portfolio Margin Calculations
      • Liquidation Mechanism
    • OptiFi Market Maker (OMM)
      • OMM Design
      • OMM Orderbook Pricing
      • Delta-Neutral Hedging
      • Continuous Functioning of OMM
      • Withdrawals from OMM
    • Options Contract Specifications
    • Account Summary
    • Fee Structure
  • 🎢Trade on OptiFi
    • Paper trade on Devnet
    • Trade on Mainnet
  • 🔐Security
    • Audit Report
  • 🏗️Build on OptiFi
    • TypeScript SDK
    • Rust Dev Tooling
  • 📚Option 101
    • Glossary
      • Basics
      • Greeks
      • Hedge
  • 💜OptiFi Community
    • Designer Guideline
    • Discord
  • Website
  • Twitter
  • Medium
Powered by GitBook
On this page
  • Stress Requirement
  • Option Value Add-On
  • Liquidity Adjustment
  1. OptiFi in Depth
  2. Margin Requirements

Portfolio Margin Calculations

PreviousPortfolio MarginNextLiquidation Mechanism

Last updated 3 years ago

The total margin requirement has three main components:

+ +

Stress Requirement

Portfolio margin is calculated by market stress approach – for each user, changes in OptiFi position values are calculated under different stress scenarios on the underlying asset. Currently, market stress scenarios are set from -30% to +30%.

For each instrument, the profit or loss can be calculated by multiplying its long (+) or short (-) position with each stress. The most severe stress for the user in terms of loss provides the collateral requirement on a portfolio basis to support open positions.

For example, we check positions separately at first: If you spend $1,489 to long a BTC-38000-1w-Call, the most severe stress is -$1,489 when the BTCUSDC spot price drops 30%. If you receive $198 to short a BTC-43000-1w-Call, the most severe stress is -$6,364 when the BTCUSDC spot price rises 30%.

However, OptiFi considers two positions as a whole strategy. Hence the most severe stress becomes -$1,292 when the BTCUSDC spot price drops 30%. It means:

Stress Requirement = -$1,292

Option Value Add-On

Option Value Add-On = min ⁡( ∑〖 Position x Option Intrinsic Value〗 , ∑〖Position x Option Premium〗)

Please note, that option value add-on here is a negative number, which corresponds to premiums or intrinsic value owed by an account in short positions.

According to the formula above, if you long a BTC-38000-1w-Call at $1,489 and short a BTC-43000-1w-Call at $198, when the current spot price is $38,000:

Option Value Add-On = min ⁡( ∑〖 $0 + $0 〗, ∑〖 $1,489 - $198 〗) = min ( $0 , $1,292 ) = $0

Liquidity Adjustment

Finally, liquidity adjustment is made to account for settlement of closest maturity contracts to ensure that there are enough funds for settlement of maturating positions. A liquidity add-on is calculated for the closest maturity contracts only:

Liquidity Adjustment = (Time to maturity x 2/365 + 1) ( ∑〖Position x Option Intrinsic Value〗)

Please note that liquidity adjustment is added only in cases where Net Option Intrinsic value is negative.

Per the case above, if you long a BTC-38000-1w-Call at $1,489 and short a BTC-43000-1w-Call at $198, when the current spot price is $38,000:

Liquidity Adjustment = (7*2/365+1)($0) + (7*2/365+1)($0) = $0 + $0 = $0

In summary, if you long a BTC-38000-1w-Call at $1,489 and short a BTC-43000-1w-Call at $198, when the current spot price is $38,000:

Total margin requirement = -$1,292 + $0 + $0 = -$1,292

If you have $5,000 USDC in Account Equity, the Available Balance = $5,000 - $1,292 = $3,708

In addition to collateral for stresses, Option Value is added to account for intrinsic and premium values on top of to ensure that there are enough funds to settle or close positions. OptiFi sets a minimum of net intrinsic or net premium value for each user:

🎯
stress requirement
Stress Requirement
Option Value Add-On
Liquidity Adjustment