Margin Requirements for Index Options Strategies
The follow strategies are eligible for margin requirement reductions：
-
Vertical Spread
-
Short Straddle
-
Short Strangle
-
Butterfly
-
Condor
-
Iron Butterfly
-
Iron Condor
-
Long Calendar Spread
-
Long Diagonal Spread
Special Margin Requirements for Short Calendar Spread
The short calendar spread, including the short diagonal spread, consists of a long leg and a short leg. The long leg has a shorter timeframe, while the short leg extends further. When the long leg expires, the short leg remains open, exposed to market risks without the corresponding long leg for hedging.
This scenario implies that the risk associated with these types of strategies can escalate significantly upon the expiration of the long leg. For these strategies, margin requirements are calculated based on individual positions.
Special Margin Requirements for VIX Options Strategies
Options pricing is determined by the current price and anticipated price movements of the underlying asset. Unlike options on stocks and stock indices, the VIX index option carries distinct risks as it is an index option on volatility.
VIX Can Change Suddenly and Drastically
The VIX, or Volatility Index, is calculated using options prices, specifically put and call options on the S&P 500 Index. This real-time market index represents the market's expectation of 30-day forward-looking volatility.
When implied volatility is high, the VIX increases correspondingly, potentially reaching very high levels. Conversely, when implied volatility is low, the VIX decreases correspondingly, reaching comparatively lower levels.
Due to the method of calculating the VIX index and its practical implications, various factors can suddenly provoke market panic, causing the VIX index to rise sharply. This means that changes in the index level can be both sudden and drastic, making the market risk for the VIX index higher compared to that of stock indices.
VIX Options Are Priced Based on VIX Futures
Stock options have tradable underlying assets, and there is hedging and replicability between stock trading and options trading, with stock options priced based on the price of the underlying stock. The underlying index of stock index options is not tradable, but replication of the index through its constituent stocks is possible, meaning stock index trading can be achieved through stock trading. Thus, stock index options are priced based on the price of the underlying index.
The VIX is a volatility index, which itself is not tradable and cannot be replicated. It is primarily traded through VIX futures (VXmain). Therefore, VIX index options are mainly priced based on VIX index futures and are only more influenced by the spot price of the VIX index as they approach expiration. There is a basis difference between the price of VIX futures and the VIX spot price, and there are calendar spreads between VIX futures with different expiration dates. This results in a risk structure for VIX option strategies that is significantly different from that of stock index options strategies.
Taking calendar spreads as an example:
-
In the case of a long calendar spread strategy using SPX index options, the prices of both options in the spread are influenced by the SPX index price.
-
In the case of a long calendar spread using VIX index options, the prices of both options in the spread are influenced by the VIX index level, but also by the basis differences between the two VIX futures.
Due to the unique risk attributes of VIX index options, VIX index options strategies are not eligible for margin requirement reductions. Margin requirements are calculated based on individual positions.