Margin Floor

The margin floor ensures portfolios maintain minimum margin requirements even when hedged positions offset each other in scenario analysis.

Overview

Scenario-based margin can underestimate risk when:

• Spreads appear perfectly hedged but have path-dependent risk
• Gamma accelerates near expiry faster than discrete scenarios capture
• Correlation assumptions break down during extreme moves

The floor acts as a backstop: a minimum margin that applies regardless of how favorable the scenario analysis looks.

How It Works

The portfolio margin option floor uses a terminal-payoff basis, calculated separately for each underlying and expiry:

1. Net matching contracts: Net long and short quantities only when underlying, expiry, strike, and option type all match.
2. Calculate the isolated basis: Sum strike times net-short quantity across the remaining short call and put buckets.
3. Check the call tail: If total call quantity is net short, potential terminal losses are unbounded as spot rises. Retain the full isolated basis for that expiry group.
4. Recognize bounded losses: Otherwise, calculate the group's signed intrinsic payoff at terminal spot zero and every strike. Take the largest cash loss, or zero if no payoff is negative, and use the smaller of this loss and the isolated basis.

Premiums are excluded from this terminal-payoff basis. There is no floor credit across expiries or underlyings.

$$\text{Option Floor} = \sum_{u} \text{floor\_factor}_{u} \times \sum_{e} \text{Basis}_{u,e}$$

Here, $u$ identifies the underlying and $e$ the expiry. The final position margin requirement is:

$$\text{Margin} = \max(\text{Scanning Risk}, \text{Option Floor}) + \text{Gamma Overlay}$$

The floor is a percentage contingency, not a maximum-loss cap on margin. Scenario scanning risk still applies in full when it exceeds the floor. Independently fillable open orders reserve both their standalone risk and any existing floor protection their fills could remove. An unfilled buy cannot protect an independently executable sell. Combo legs are evaluated together, but separate combo orders can fill independently. Partial fills must leave the remaining orders funded.

Option Contingency

Underlying	Floor factor	Applied to
Every listed underlying	1.5%	Sum of expiry-scoped floor bases

Production uses one floor factor for all underlyings, including the equity underlyings. The live values are on PM Risk Parameters.

Example: Ten short BTC calls at strike 100,000 and five long BTC calls at strike 105,000, all at the same expiry, leave five net short calls in the upper tail. The full isolated basis remains $1,000,000, giving a floor of $15,000 at 1.5%. The long calls can reduce scanning risk but do not reduce this group's floor basis.

Short-Dated Gamma Overlay

Short options with more than zero and at most 48 hours until expiry carry an extra charge for gamma acceleration. Production uses the spread-credit form of this overlay.

Legs are grouped by underlying, expiry and option type. Calls never offset puts. For each group, with net quantity $q_K$ at each strike $K$:

$$\text{Gross Short} = \sum_K \max(0, -q_K) \qquad \text{Net Short} = \max\Big(0, -\sum_K q_K\Big)$$ $$\text{Matched} = \text{Gross Short} - \text{Net Short}$$ $$\text{Overlay} = k \times S \times \text{Net Short} + \min(k \times S \times \text{Matched},\; L)$$

• $k$ is the kicker factor (1%) and $S$ is spot.
• $L$ is the group's largest terminal loss, checked at terminal spot zero and at every strike in the group.
• A net short call tail gets no credit. If the call group is net short, the matched shorts pay the full $k \times S$ as well.
• Open orders count toward the overlay, so a resting short near expiry is charged as if it filled.

The overlay is never more than 1% of spot per gross short contract, and never less than 1% of spot per net short contract. It applies on top of the floor or scanning risk, whichever is higher.

Because the overlay is added on top, a short-dated spread can be charged more than its maximum loss. A defined-risk cap (V3) that limits such books to their maximum loss is planned and not yet in force; see PM Risk Parameters.

Parameters

Parameter	Description	Value
option_floor_factor	Percentage of expiry-scoped floor basis	1.5%
gamma_kicker_factor	Overlay per short contract, as a fraction of spot	1.0%
expiry_threshold	Time window for the gamma overlay	48 hours
Gamma overlay form	How matched shorts are credited	Spread credit
Open orders	Included in floor and overlay	Yes

Examples

Example 1: Short Strangle

Position: Short 1 BTC 90,000 put + Short 1 BTC 110,000 call, same expiry Spot: $100,000

$$\text{Isolated Basis} = \$90{,}000 + \$110{,}000 = \$200{,}000$$ $$\text{Floor} = 0.015 \times \$200{,}000 = \$3{,}000$$

The net-short call tail retains the isolated basis for the entire expiry group. Margin is at least $3,000 plus any gamma overlay, and can be higher when scanning risk dominates.

Example 2: Near-Expiry Position

Position: Short 5 BTC 100,000 calls expiring in 24 hours Spot: $100,000

$$\text{Floor} = 0.015 \times \$100{,}000 \times 5 = \$7{,}500$$ $$\text{Gamma Overlay} = 0.01 \times \$100{,}000 \times 5 = \$5{,}000$$ $$\text{Minimum Margin} = \$7{,}500 + \$5{,}000 = \$12{,}500$$

Example 3: Hedged Spread

Position: Short 10 BTC 100,000 calls + Long 10 BTC 105,000 calls, same expiry Spot: $100,000

$$\text{Terminal-Loss Basis} = (\$105{,}000 - \$100{,}000) \times 10 = \$50{,}000$$ $$\text{Floor} = 0.015 \times \$50{,}000 = \$750$$

The calls have no net-short upper tail, so the bounded terminal loss reduces the floor basis from $1,000,000 to $50,000. Margin is the larger of scanning risk and the $750 floor, plus any short-dated gamma overlay.

If this spread were inside 48 hours of expiry, all ten shorts are matched by the longs, so the overlay is min(1% × $100,000 × 10, $50,000) = $10,000. The spread's $50,000 terminal loss is larger than the full charge, so the credit does not reduce it here. A narrower spread gets a real reduction; see PM Margin Worked Examples. Legs in different expiries receive no spread credit.

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See also:

• Portfolio Margin: Scenario-based margin calculation
• PM Margin Worked Examples: Floor and overlay in full calculations
• Standard Margin: Options-only margin