Collateral, Asset and Margin Balance
Thalex accepts BTC, ETH, USDt and USDC as collateral assets. BTC and ETH contracts are collateralized by the same asset pool. The Asset Balance is defined as the total value of collateral, translated to USD.
- USDt and USDC are translated at a value determined by Thalex. No haircuts are applied.
- BTC and ETH are translated at their respective Index values. These assets are treated as positions for the calculation of margin requirements.
Asset Balance and Unsettled P&L together make up Margin Balance. Unsettled P&L is the profit and loss expressed in USD from open and closed positions in contracts since last settlement, updated in real-time.
Margin Balance is compared to margin required to determine the ability to change or maintain positions.
Portfolio Margin Methodology
Margin Requirements are calculated per underlying.
The total Initial Margin Requirement (IMR) is equal to the sum of Initial Margin Requirements.
The Maintenance Margin Requirement (MMR) is 70% of the Initial Margin Requirement.
The Initial Margin Requirement for an underlying asset consists of:
Maximum Loss Coverage
Maximum loss is calculated by simulating scenarios constructed by relative changes in the price of the underlying (as measured by the Index) and absolute changes in implied volatility. In each scenario the potential loss is multiplied with a corresponding coverage factor. Thalex includes extreme scenarios for which only partial coverage is required (coverage factor < 1).
In total about 50 different scenarios are run. Extreme scenarios are construed in such a way that they do not impact portfolios with no option positions, while portfolios with large tail risks are most impacted.
The loss coverage for a scenario is loss x coverage factor. The maximum loss coverage is the largest loss coverage across all scenarios.
Scenarios bound by a price change of -/+20% and a volatility change of -30% to +45% require full coverage of any simulated loss. Extreme scenarios with a price change of up to -70% and +100% and, correspondingly, wider ranges of changes in implied volatility require partial coverage.
For options that expire within 30 days, the change in volatility is amplified by a factor equal to where d is the number of days to expiration.
Thalex adds margin for positions with offsetting price sensitivity (delta) in different maturities.
The roll position is the minimum of the sum of long delta positions on the one hand and the sum of short delta positions on the other hand. For this purpose, the delta position is aggregated by maturity over both options and futures positions. Collateral in the underlying assets and the perpetual are treated as distinct maturities for this purpose.
The Roll Contingency equals 4% of the Index Roll Position.
Thalex adds margin for each short strike position.
A strike position is the sum of the call option position and the put option position of a given strike and maturity. The Total Short Option Position is the sum of short strike positions.
The Options Contingency equals 0.25% of Index × Total Short Options Position.
What follows are three examples illustrating a component of the portfolio margin calculation.
The examples only include BTC contracts. Assume for simplicity that the BTC Index and Future Mark Price are $50,000.
Maximum Loss Coverage
This example shows a portfolio of call options all with a time to maturity of 14 days.
To clarify the impact of extreme scenarios, the outcome of the calculation is shown twice:
- Only full coverage scenarios (coverage factor = 1)
- All scenarios including extreme scenarios (coverage factor <= 1)
|Scenarios||Max Range (%Index, %IV)||P&L||Coverage Factor||Max Loss Coverage|
|Full coverage only||+ 20%, + 45%||- $16,823||1.0||$16,823|
|Partial coverage included||+ 100%, + 100%||- $123,956||0.2||$24,791|
Take the following positions: +3 BTC-PERPETUAL, --4 BTC-25FEB22 and +4 BTC-25MAR22.
This example has a total long delta position of seven and a total short delta position of four. Therefore, the roll position equals four. The Roll Contingency is 4 × 4% × $50,000 = $8,000.
Note that within this example we would end up with the same contingency if, for instance, we replaced the long position of four 25MAR22 futures by a long position of eight delta 50 BTC 25MAR22 calls.
Take the following portfolio of options with the same maturity:
|Strike||Call Position||Put Position|
|BTC-DDMMMYY-48000||- 3||- 7|
|BTC-DDMMMYY-50000||- 5||+ 8|
|BTC-DDMMMYY-52000||+ 2||- 5|
This portfolio has a short option position of ten contracts at the 48K strike, zero contracts at the 50K strike, and three contracts at the 52K strike. The Option Contingency is 13 x 0.25% x $50,000 = $1,625.
Mass quotes are not counted as open orders and require setting market maker protection. No quote can be larger than the configured mmprot (market maker protection size) and configuring the market maker protection size requires an instant margin room of the mmprot size × Index price.
Treatment of Orders
Open orders are taken into account for all margin calculations.
Initial Margin is the Margin Balance required to open or close positions that would increase portfolio risk.
If the Margin Balance is below the Initial Margin Requirement, only orders which do not increase the margin requirement are accepted and orders increasing the margin requirement are automatically cancelled.
Maintenance Margin is the Margin Balance required to maintain positions.
Upon breach of Maintenance Margin, all open orders are automatically cancelled.
Breach of Maintenance Margin triggers the Liquidation Process. The Liquidation Process has the objective to restore Margin Balance to the Initial Margin Requirement.
Thalex enters portfolio risk reducing orders as immediate-or-cancel limit orders, subject to size constraints and to a liquidation time constraint.