Lesson 10: Margining and Risk Basics (Beginner-Safe, Hypercall-Specific) Promise : Understand why short options require margin and what "liquidation risk" really means.
Long vs Short Risk
The risk profile of options is asymmetric:
Aspect
Long Options
Short Options
Max loss
Premium paid
Very large (unlimited for calls)
Margin required
None (beyond premium)
Yes
Liquidation risk
None
Yes, if equity drops
💡 Margin is the system asking: can you survive a bad move?
See It In Action
Toggle between long and short positions. Drag spot price to see how P&L changes and when liquidation triggers for shorts.
Long Call Short Call Long Put Short Put
P&L at Expiry
K=100 + - Spot Current P&L -5
Account Status
✓
No Margin Required
Max loss = $5 premium
Liquidation impossible
Spot Price at Expiry $100
$70 $130
Bounded Risk
Your maximum loss is the $5 premium you paid. No matter how far spot moves against you, you can't lose more.
Why Longs Don't Need Margin
When you buy an option, you pay the full premium upfront. That premium IS your max loss. The platform already has your money. There's nothing more to collect.
Why Shorts Need Margin
When you sell an option, you receive premium but take on potentially large losses. The platform needs assurance you can pay if the trade goes against you. That's what margin provides.
"Selling options is not 'getting paid'. It's accepting someone else's convex risk."
Two Margin Modes
Hypercall offers two margin modes:
Standard Margin
Simple per-position formulas, no offsets
Beginners, simple positions
Portfolio Margin
Scenario-based, recognizes hedges
Advanced traders, complex portfolios
For beginners, Standard Margin is the default and recommended starting point.
Key Margin Concepts
Initial Margin (IM)
Margin required to OPEN a position
Maintenance Margin (MM)
Margin required to KEEP a position open (lower than IM)
Equity
Your account value: Cash + Unrealized P&L
Liquidation
Forced position closure when Equity < MM
How Orders Affect Margin
Order Type
What Gets Reserved
Margin Impact
BUY Order
Premium (cash set aside)
None (longs have zero margin)
SELL Order
Margin requirement
Added as if position exists
Your account equity is divided into:
Available Capital
What you can use for new orders
Position IM
Margin held for existing short positions
Open Orders IM
Margin reserved for pending sell orders
Premium Reserved
Cash set aside for pending buy orders
Liquidation Trigger
Liquidation happens when:
Equity < Maintenance Margin \text{Equity} < \text{Maintenance Margin} Equity < Maintenance Margin When triggered:
System begins closing positions
Liquidator may take over at a discount
Goal: restore Equity > MM
How to Avoid Liquidation
Don't over-leverage
Keep positions smaller than your margin allows
Monitor margin ratio
Catch problems before liquidation
Close positions early
Exit before they become problematic
Keep a buffer
Stay well above maintenance margin
Bounded vs Unbounded Risk
Risk type
Bounded
Large/Unbounded
Max loss
Premium
Can be >> Premium received
Margin
✅ None needed
⚠️ Required
Liquidation
✅ Impossible
⚠️ Possible
💡 If you stick to long options only, you cannot be liquidated. This is why beginners should start with longs.
Common Mistakes
Selling options because premium "looks small"
Premium is your max gain, but loss can be many times larger. Always model worst case.
Not understanding near-expiry gamma risk
Near expiry, gamma is high. Small moves can dramatically change margin requirements.
Ignoring how open orders affect margin
SELL orders consume margin capacity even before they fill.
Assuming margin ratio stays constant
As spot moves, your margin requirement changes. Monitor continuously.
Self-Check Test your understanding before moving on.
Q: Why do longs usually not require margin beyond premium?
Show answer Q: What is the operational meaning of 'maintenance margin'?
Show answer Q: Why can open orders affect your ability to place new trades?
Show answer 💡 Tip: Try answering each question yourself before revealing the answer.
See Also
Navigation: ← Lesson 9: Expiry & Settlement | Lesson 11: Common Mistakes →