Portfolio Margin

Portfolio Margin uses SPAN-style scenario analysis to calculate margin requirements across spot collateral, perpetuals, and options. This mode recognizes that hedged portfolios are less risky than their individual positions suggest. Instead of summing per-position margins, the system evaluates your entire portfolio under stressed market scenarios and requires margin equal to the worst-case loss.

Instruments: Portfolio Margin accounts can hold:

• Spot assets (BTC, ETH, etc.) as haircutted collateral
• Perpetual futures (BTC-PERP, ETH-PERP, etc.)
• Options (calls and puts)

All three instrument types are included in scenario analysis, providing cross-margining benefits.

Mental Model

Portfolio Margin follows a fundamentally different approach than Standard Margin:

1. Multi-asset support - Hold spot, perps, and options in one account
2. Scenario-based risk - System tests your portfolio against multiple market shock scenarios
3. Worst-case becomes margin - Your IM is the largest loss across all scenarios
4. Cross-collateral benefits - Spot assets, perps, and options all contribute to margin capacity
5. Cross-margining benefits - Offsetting positions (e.g., call spread, perp hedge) naturally reduce margin
6. No premium reservation - Capital isn't locked for open orders; orders treated as filled positions
7. Unified calculation - All instruments contribute to scenario analysis

How It Works

Think of Portfolio Margin as stress testing:

For each scenario (spot ±X%, vol ±Y%, etc.):
  1. Reprice all positions under shocked conditions
  2. Calculate portfolio value change (P&L)
  3. Record the loss

Margin Requirement = max(0, -min(all scenario P&Ls))

In other words: What's the worst loss you could face across all defined scenarios? That's your margin.

Core Concepts

Scenario Grid

The system evaluates your portfolio across multiple market scenarios. Each scenario shocks spot prices and/or implied volatility, then reprices all positions using Black-Scholes.

Unlike traditional SPAN implementations that use a uniform matrix, Hypercall uses a Compact Correlated SPAN approach with asymmetric vol shocks—down moves get larger vol increases than up moves, reflecting real market behavior during crashes.

Core Scenarios (13 scenarios)

Scenario	Spot Shock	Vol Shock
1	+12%	+35%
2	+8%	0%
3	+4%	-15%
4	0%	+35%
5	0%	0%
6	0%	-15%
7	-4%	-15%
8	-8%	0%
9	-12%	+45%
10	+12%	0%
11	-12%	0%
12	+8%	+25%
13	-8%	+35%

Tail Scenarios (4 scenarios)

Extreme scenarios with partial P&L weighting to avoid over-penalizing rare events:

Tail	Spot Shock	Vol Shock	P&L Weight
T1	-25%	+70%	0.60
T2	+25%	+55%	0.60
T3	-40%	+90%	0.35
T4	+40%	+70%	0.35

Key Design Choices

• Vol shocks are multipliers: +35% means IV × 1.35
• Correlation is built-in: Down moves get larger vol-up than up moves (crash dynamics)
• Tail weighting: Extreme scenarios contribute partial P&L to avoid excessive conservatism

Safety Add-ons

To prevent scenarios where spread offsets reduce margin too aggressively, the system applies floor add-ons:

1. Minimum Margin Floor: A percentage of spot notional for net short options (per underlying)
2. Short-Dated Gamma Kicker: Extra margin for options expiring within 48 hours to account for gamma acceleration

See Margin Floor for detailed formulas and parameters.

Scanning Risk

Scanning Risk is Portfolio Margin's core metric:

$$\text{Scanning Risk} = -\min(\text{scenario P\&Ls})$$

This is the maximum loss your portfolio would sustain in any single scenario. The negative sign converts a loss (negative P&L) to a positive margin requirement.

Margin Requirements

$$\text{IM} = \max(\text{Scanning Risk}, \text{Floor}) + \text{Gamma Kicker}$$ $$\text{MM} = 0.85 \times \text{IM}$$

Where:

• Scanning Risk = worst-case scenario loss
• Floor = minimum margin from net short options (see Margin Floor)
• Gamma Kicker = additional margin for near-expiry options

MM is set at 85% of IM, providing a liquidation buffer.

Equity Calculation

Portfolio Margin equity includes all collateral types:

$$\text{Equity} = \text{Cash} + \sum_{i}(Q_i \times S_i \times CF_i) + \text{UPNL}_{\text{perps}} + \text{UPNL}_{\text{options}}$$

Where:

• Cash = USDC balance
• Spot collateral = Haircutted value of spot assets
• UPNL_perps = Unrealized P&L from perpetual positions
• UPNL_options = Unrealized P&L from option positions

Premium Financing vs. Upfront Payment

Portfolio Mode (this mode): Premium is financed—not paid from cash.

When you buy an option:

• Cash balance: unchanged
• Position added with entry_price = fill price
• UPNL = (mark_price - entry_price) × size
• If you overpaid (mark < entry), the UPNL is negative and reduces equity
• The "cost" of the option is captured in UPNL, not in cash

Standard Mode: Premium is paid upfront from cash.

When you buy an option:

• Cash balance: decreases by premium
• Position added with entry_price = fill price
• UPNL = (mark_price - entry_price) × size
• The premium already hit your cash, so UPNL only tracks value changes

Key distinction: In Portfolio mode, UPNL effectively includes the option's cost since cash wasn't debited. In Standard mode, cash was debited, so UPNL only tracks changes from entry.

Formulas

Scenario P&L Calculation

For a single scenario $i$:

$$\text{PnL}_i = \sum_{j} \left( V_j^{\text{shocked}_i} - V_j^{\text{current}} \right)$$

Where:

• $V_j^{\text{current}}$ = current mark value of position $j$
• $V_j^{\text{shocked}_i}$ = Black-Scholes value under scenario $i$ with shocked spot, IV, and time

Worst-Case Loss

$$\text{Worst Case Loss} = \min(\text{PnL}_1, \text{PnL}_2, \ldots, \text{PnL}_N)$$

This is the most negative P&L across all scenarios.

Initial Margin Required

$$\text{IM} = \max(0, -\text{Worst Case Loss})$$

Convert the worst loss to a positive margin requirement. If all scenarios show profit, IM = 0 (though this is rare).

Available Capital

$$\text{Total IM} = \text{Position IM} + \text{Open Orders IM}$$ $$\text{Available Capital} = \text{Equity} - \text{Total IM}$$

Where:

• Position IM: Margin for executed positions (from scenario analysis)
• Open Orders IM: Additional margin from open orders treated as filled

No premium reservation in Portfolio mode, so available capital is simply equity minus total IM.

Open Order Accounting

Order Treatment

Open orders are treated as hypothetically filled:

• BUY order → Treated as long position in scenario analysis
• SELL order → Treated as short position in scenario analysis

Both add to the portfolio and affect the scenario grid. The margin requirement for "open orders" is implicit—it's the difference between the hypothetical portfolio IM and the current portfolio IM.

Key difference from Standard: No cash is locked for open BUY orders. The order's impact is captured entirely through scenario analysis.

On Fill

When an order fills, it transitions from "hypothetical" to "actual":

• The position is added to your portfolio
• Scenario analysis updates to include the new position
• Net margin change is usually small (order was already in scenarios)

On Cancel

Order removed from hypothetical portfolio:

• Scenario analysis excludes the canceled order
• IM recalculated, often decreasing

Cross-Collateral and Cross-Margining

Portfolio Margin provides two types of benefits:

Cross-Collateral

Use multiple asset types as margin:

• Spot BTC and ETH (haircutted)
• Perp positions
• Option positions

All contribute to your equity and margin capacity.

Cross-Margining

Offsetting positions reduce total margin requirement:

• Call spread: Long call hedges short call
• Perp hedge: Short perp hedges long call delta
• Multi-asset: BTC positions can margin ETH positions (though scenarios still test per-underlying)

Worked Examples

Example: Call Spread

Consider this portfolio:

• Long 10 ETH-4000-C @ 200
• Short 10 ETH-4200-C @ 100

Standard Margin would calculate:

Long call IM = 0 (fully paid)
Short call IM ≈ 3,800 USDC
Total IM = 3,800

Portfolio Margin recognizes the hedge:

In every scenario, if spot rises:

• Long call gains value
• Short call loses value
• Max loss is capped at spread width minus net premium

Worst-case loss ≈ (4200 - 4000 - 100) × 10 = 1,000 USDC
IM = 1,000 (73% reduction!)

Example: Straddle

Portfolio:

• Short 5 ETH-4000-C @ 300
• Short 5 ETH-4000-P @ 280

Standard Margin:

Short call IM = 5 × 380 = 1,900
Short put IM = 5 × 380 = 1,900
Total IM = 3,800

Portfolio Margin evaluates each scenario:

• Spot up: Call loses, put gains
• Spot down: Put loses, call gains
• Worst loss drives margin (typically one extreme scenario)

Worst-case (e.g., spot -15%, IV +30%) ≈ 3,200 USDC
IM = 3,200 (16% reduction)

The benefit is smaller here because spot movement makes one leg lose—straddles aren't fully hedged. But PM still captures some reduction from the opposite-side gains.

Invariants

Equity Composition

$$\text{Equity} = \text{Cash} + \sum_{i}(Q_i \cdot S_i \cdot CF_i) + \sum_j \text{UPNL}_j^{\text{perp}} + \sum_k \text{UPNL}_k^{\text{option}}$$

Where $CF_i = (1 - \text{haircut}_i)$ for each spot asset.

IM from Scanning Risk + Floor

$$\text{IM} = \max(\text{Scanning Risk}, \text{Floor}) + \text{Gamma Kicker}$$ $$\text{Scanning Risk} = \max(0, -\min(\text{scenario P\&Ls}))$$

IM incorporates both scenario analysis and safety floors. See Margin Floor.

MM Ratio

$$\text{MM} = 0.85 \times \text{IM}$$

Maintenance margin is always 85% of initial margin.

Available Capital Non-Negative

$$\text{Available Capital} = \text{Equity} - \text{IM}$$ $$\text{Can open new positions} \iff \text{Available Capital} \geq 0$$

Orders rejected if equity falls below IM requirement.

Long Options Not Zero Margin

$$\text{Long option position} \Rightarrow \text{Contributes to scenario losses}$$

Unlike Standard mode, longs DO require margin in Portfolio mode (they can lose value in adverse scenarios).

Comparison with Standard Margin

Feature	Standard Margin	Portfolio Margin
Instruments	Options only	Spot + Perps + Options
Calculation	Per-position formulas	Scenario analysis
Spot collateral	Not supported	Yes (haircutted)
Cross-margining	No	Yes
Long options	Zero margin	Included in scenarios
Premium	Paid upfront	Financed
Best for	Simple options trading	Hedged portfolios