Bull and Bear spreads are options trading strategies that involve purchasing call or put options while simultaneously selling the same number of calls or puts on the same asset with identical expiration dates but different strike prices.
For example, let’s examine a Bear Put Spread:
Suppose BTC is trading at $20,250. Trader A executes the following:
| Contracts | Direction | Entry Price | Mark Price |
|---|---|---|---|
| BTC-22JUL22-18500-P (Sell) | −1 | 280 USDC | 290 USDC |
| BTC-22JUL22-20000-P (Buy) | 1 | 760 USDC | 750 USDC |
Margin Requirements: Cross Margin vs. Portfolio Margin
1. Cross Margin Mode
In cross-margin trading, the seller’s account is charged a maintenance margin, while the buyer pays a premium.
| Contracts | Premium | Maintenance Margin Required |
|---|---|---|
| BTC-22JUL22-18500-P (Sell) | −280 USDC | 2,315 USDC |
| BTC-22JUL22-20000-P (Buy) | 760 USDC | — |
Calculation:
- Position MM =
[Max(0.03 × 20,250, 0.03 × 290) + 290 + 0.2% × 20,250] × 1 = 938 USDC - Position IM =
Max[(Max(0.15 × 20,250 − (20,250 − 18,500), 0.1 × 20,250) + Max(280, 290) × 1), Position MM] = 2,315 USDC
👉 Learn more about margin calculations
2. Portfolio Margin Mode
Portfolio margin calculates the Maximum Loss and Contingency Component under preset volatility and price scenarios.
Risk Parameters:
| Asset | Risk Parameter | Preset Price Range | Preset Volatility % |
|---|---|---|---|
| BTC-Options | 15% | (±3%, ±6%, ±9%, ±12%, ±15%) | (-28%, 0%, 33%) |
| ETH-Options | 15% | (±3%, ±6%, ±9%, ±12%, ±15%) | (-28%, 0%, 33%) |
P&L Under 33 Scenarios (BTC-Options Example)
| Scenario | Total P&L (USDC) | BTC-18500-P (USDC) | BTC-20000-P (USDC) |
|---|---|---|---|
| -15% | 625.80 | -1,684.48 | 2,310.27 |
| -12% | 644.51 | -937.91 | 1,582.42 |
| -9% | 628.66 | -261.02 | 889.67 |
| -6% | 271.86 | -751.94 | 1,023.80 |
| -3% | 149.58 | -146.02 | 295.60 |
| 0% | -115.28 | 221.01 | -336.29 |
| +3% | -43.20 | -201.96 | 158.77 |
| +6% | -224.44 | 170.56 | -394.99 |
| +9% | -407.65 | 279.79 | -687.43 |
| +12% | -252.42 | 77.76 | -330.18 |
| +15% | -384.87 | 260.04 | -644.91 |
Calculation:
- Maximum Loss =
ABS[Min(P&L)] = 434.65 USDC - Contingency Component =
0 - Position MM =
434.65 USDC - Position IM =
434.65 × 1.2 = 521.58 USDC
👉 Why portfolio margin improves efficiency
Key Takeaways
- Cross Margin: Occupies 2,315 USDC—higher capital requirements.
- Portfolio Margin: Requires 521.58 USDC—offers superior capital efficiency.
FAQ
Q1: Which is better—cross margin or portfolio margin?
A: Portfolio margin is optimal for advanced traders due to lower margin requirements and risk-based calculations.
Q2: How is the Maximum Loss determined in portfolio margin?
A: It’s derived from the worst-case P&L scenario across preset volatility and price ranges.
Q3: Can beginners use portfolio margin?
A: No—it’s designed for experienced traders familiar with complex strategies.
Q4: Does portfolio margin reduce risk?
A: No—it optimizes capital but doesn’t eliminate market risk.
Q5: Are there additional fees in portfolio margin?
A: No—but risk factors may adjust under extreme conditions.
Conclusion
Portfolio margin drastically reduces capital requirements for spreads, making it ideal for traders seeking efficiency. For further insights, explore our expert guides.