Understanding Margin Requirements in Options Trading: Initial and Maintenance Margin Guide

Before diving into options trading on leverage, traders must grasp two fundamental concepts: how much capital is required to open a position and what amount must be maintained to keep that position alive. These are the Initial Margin (IM) and the maintenance margin—two pillars of risk management that every trader should understand thoroughly. The maintenance margin, in particular, determines whether your position remains open or gets liquidated, making it crucial knowledge for anyone engaging with options contracts.

Why Maintenance Margin Matters: The Liquidation Threshold

The maintenance margin represents the minimum balance required to sustain an open position. When your account balance drops below this threshold, positions are forced to close—a scenario no trader wants to face. This differs from Initial Margin, which is simply the upfront capital needed to open a position.

Long options positions follow different rules: when you purchase a Call or Put Option, you only need to pay the premium upfront. These positions do not require any maintenance margin because your risk is limited to the premium paid. You cannot lose more than what you’ve already invested.

Short options positions operate under stricter requirements. When selling Options, you must maintain a specified maintenance margin level. This ensures that if the option gets exercised, you have sufficient funds to meet your obligations. Account-level maintenance margin is calculated as the sum of all maintenance margin requirements from your short positions.

Maintenance Margin Calculation: The Formula

The maintenance margin for a short position depends on several factors: the underlying asset’s index price, the option’s mark price, and the position size. The calculation uses this formula:

Account MM% = Account MM / Margin Balance × 100%

Account MM = Sum (Short Position MM)

Position MM = [Max (MM Factor × Index Price, MM Factor × Option Mark Price) + Option Mark Price + Liquidation Fee Rate × Index Price] × ABS (Position Size)

Real Example: Suppose you sell 1 BTC in BTCUSDT-Options. The BTC index price stands at $30,000, and the option’s mark price is $300. Your position’s maintenance margin requirement is calculated as:

Position MM = [Max (3% × 30,000, 3% × 300) + 300 + 0.2% × 30,000] × 1 = 1,260 USDT

If your total margin balance is $10,000, your maintenance margin percentage equals 1,260 ÷ 10,000 = 12.6%. As long as this percentage stays below your account’s threshold, your position remains safe.

Decoding Initial Margin: Capital Requirements for Opening Positions

While maintenance margin protects existing positions, the Initial Margin determines whether you can open one in the first place. Account-level Initial Margin combines two components: Order IM (from pending orders) and Position IM (from existing positions).

Account IM% = Account IM / Margin Balance × 100%

Account IM = Account Order IM + Account Position IM

Initial Margin for New Orders: Three Scenarios

When placing a new order, the capital requirement varies based on your order type.

Buying to Open (Buy to Open Orders): When purchasing an option, your order IM equals the premium plus trading fees:

Order IM = Premium + Trading Fee

Premium = Order Size × Order Price

Trading Fee = Min (Taker Fee Rate × Index Price, Maximum Proportion of Transaction in Order Price × Order Price) × Order Size

Example: You place an order to buy 1 BTC BTCUSDT call option at $300, with BTC’s index price at $30,000.

Order IM = 300 + 9 = 309 USDT

• Premium = 1 × 300 = 300 USDT
• Trading Fee = Min (0.03% × 30,000, 7% × 300) × 1 = 9 USDT

Selling to Open (Sell to Open Orders): Selling options demands higher Initial Margin due to leverage requirements. The calculation is more complex:

Order IM = Max (Order IM’, Position MM) + Fee − Premium

Order IM’ = [Max (Max IM Factor × Index Price − OTM Amount, Min IM Factor × Index Price) + Max (Order Price, Mark Price)] × Order Size

Example: You sell 1 BTC call option at $350. BTC index is $30,000, mark price is $300.

Order IM = 2,009 USDT (detailed calculation shows how maximum factors and OTM amounts affect the requirement)

Buying to Close (Buy to Close Orders): When closing short positions, most of the margin is released back. Order IM is only required if the premium exceeds the released margin:

Order IM = Max (0, Premium + Fee − Order IM’)

In many cases, this results in zero additional margin requirement, as the released capital covers the closing cost.

Initial Margin for Positions: The Ongoing Requirement

Beyond orders, every short position you hold requires an Initial Margin. This ensures you can meet obligations across your entire portfolio.

Account Position IM = Sum (Position IM)

Position IM = Max (Position IM’, Position MM)

Position IM’ = [Max (Max IM Factor × Index Price − OTM Amount, Min IM Factor × Index Price) + Max (Position Avg. Price, Option Mark Price)] × ABS (Position Size)

Example: You hold a short 1 BTC position with an average entry price of $350. Current index is $30,000, mark price $300, margin balance $10,000.

Position IM = 2,350 USDT

This means 23.5% of your margin balance is committed to this position to maintain it.

Complete Parameter Reference Table

Different cryptocurrencies carry different risk parameters. Here’s the comprehensive breakdown:

Universal Parameters:

• Maximum Proportion of Transaction in Order Price: 7%
• Liquidation Fee Rate: 0.2%
• Taker Fee Rate: 0.03%

Key Insights: Maintenance Margin and Account Safety

Understanding maintenance margin is essential for staying solvent in options trading. Different margin modes apply different rules: in Cross Margin mode, premiums and fees occupy margin immediately. In Portfolio Margin mode, Initial Margin adjusts after the order fills without occupying margin beforehand.

When using reduce-only functions to close positions, your order size is limited to your existing position amount. Without this protection, you could accidentally open new positions while attempting to close existing ones.

The relationship between maintenance margin levels and your liquidation risk cannot be overstated. By monitoring this metric regularly, traders can take proactive steps to deposit additional funds or reduce positions before hitting critical thresholds, thereby maintaining full control over their options portfolio.