Margining Requirements for FX Options
Determination of Margin Requirements
Margin for short FX option =
Option premium + Maximum [Margin “A” – Out-of-the-money, Margin “B”]
Margin “A” =Price of underlying FX Fixing (after conversion for weight and fineness) × Contract size × Risk coefficient
The value obtained by this formula is rounded upward to the nearest RMB$100
Margin “B” =Margin “A” × 0.5, rounded up to the nearest RMB$100
Out-of-the-money for short call = Maximum (strike price x strike price multiple - value of underlying spot, 0)
Out-of-the-money for short put = Maximum (value of underlying FX Fixing - strike price × strike price multiple, 0)
The calculation of the risk coefficient of margins for FX option contracts is based on the price movements of the underlying spot within a certain period, anti-procyclicality and other possible factors with at least a 99 percent confidence interval to cover two-day premium price variation.
Margin requirements for various FX options trading strategies
| Trading Strategy | Position Description | Margin Requirements | Remarks |
|---|---|---|---|
| Single Position | Long Put or Long Call |
None | Pay for the premium only |
| Short Put or Short Call |
100% of option market value + max(A - out-of-the-money amount, B) | A= a fixed amount as announced by TAIFEX B= a fixed amount as announced by TAIFEX |
|
| Spread Positions | Bull Call Spread: buy low/sell high | None |
|
| Bear Put Spread: buy high/sell low | |||
| Buying call and selling call having the same or different strike price with the buy position having the farther expiration date (time call spread) | Max (clearing margin for index futures having the same underlying x10%, 2x premium difference(points)xcontract multiplier) |
|
|
| Buying put and selling put having the same or n different strike price with the buy position having the farther expiration date (time put spread) | |||
| Bear Call Spread: buy high/sell low | Difference between the strike prices of the buy and sell positions x contract multiplier |
|
|
| Bull Put Spread: buy low/sell high | |||
| Straddle or Strangle Positions | Short Call and Short Put |
max(margin requirement for call, margin requirement for put) + the option market value of the call or put (depending on which one's margin requirement is less) | The method can be applied even when the exercise prices of the call and put options differ |
| Combination of Options and Futures Positions | Long futures and short call or Short futures and short put |
Margin requirement of the futures and the option market value |
|
| Conversion and Reverse Conversion | Conversion: Long put, short call | No margin required on long position. The margin on short position is calculated the same way as that on a short call or short put. |
|
| Reverse conversion Long call, short put |
