Understanding how initial margin and maintenance margin are calculated is a key concept for traders who decide to trade on margin. Let's run through these two terms before proceeding with the calculations.

- Initial margin (IM) is the minimum required margin to open a position.

- Maintenance margin (MM) is the minimum amount of funds required to maintain a position. Do note that positions will be liquidated when the margin drops below the maintenance margin level.

Next, let's take a look at how the IM and MM in USDC option trading are calculated under different option types:

**Long**

#### Option buyers have to pay a premium to own the call or put option. The maximum loss they may face is the cost of buying an option — both the premiums paid and trading fee.

**Buy Call/Put**

**Formula**

*Cost** = Premium + Trading Fee*

*Premium = ABS (Order Size) × Option Order Price*

*Trading Fee = Minimum (Taker Fee Rate × Index Price, Maximum Proportion of Transaction in Order Price × Option Traded Price) × Options Traded Size*

Using the call option as an example:

When the BTC index price is $42,000, Trader A places a 0.3 BTC BTC-31DEC21-48000-C, with a traded price of $3,500. The minimum margin required to open a position is 1,053.78 USDC, based on the following caculations:

Cost = 1,050 + 3.78 = 1,053.78 USDC

- Premium = 0.3 × 3,500 = 1,050 USDC
- Trading Fee = Min (0.03% × 42,000, 12.5% × 3,500) × 0.3 = 3.78 USDC

**Short**

As option sellers, you will receive a premium from the option buyer.

**Sell Call/Put**

**Formula**

*Initial Margin = Position IM + Trading Fee − Premium*

*Position IM = Maximum [Maximum (15% × Index Price − OTM Amount, 10% × Index Price) + Maximum (Position Average Price, Option Mark Price)] × (ABS (Order Size), Position MM)*

*— **OTM Amount for **Call Option** = Maximum (0, Strike Price − Index Price)*

*— **OTM Amount for **Put Option** = Maximum (0, Index Price − Strike Price)*

*Position MM = [Maximum (3% × Index Price, 3% × Option Mark Price) + Option Mark Price + 0.2% × Index Price)] × Abs (New Position Size)*

*Trading Fee = ABS (Order Size) × Minimum (Taker Fee Rate × Index Price, Maximum Proportion of Transaction in Order Price × Option Order Price)*

*Premium = ABS (Order Size) × Option Order Price*

**Sell Call**

**Example**

When the BTC Index price is $42,000, Trader A has a margin balance of $10,000 and sells 0.3 BTC BTC-31DEC21-45000-C at a price of $1,000. The current mark price is $1,100.

The calculation is as follows:

- Position MM = [Maximum (3% × 42,000, 3% × 1,100) + 1,100 + 0.2% × 42,000] × 0.3 = 733.2 USDC
- MM Ratio = 733.2/10,000 = 7.33%

- Position IM = Maximum [Maximum (15% × 42,000 − 3,000, 10% × 42,000) + Maximum (1,000, 1,100)] × (0.3, Position MM ) = 1,590 USDC
- Trading Fee = Minimum (0.03% × 42,000, 12.5% × 1,000) × 0.3 = 3.78 USDC
- Premium = 0.3 × 1,000 = 300 USDC
- Order IM = 1,590 + 3.78 − 300 = 1,293.78 USDC

- IM Ratio = 1,293.78/10,000 = 12.94%

** **

**Sell Put**

**Example**

When the BTC index price is $45,000, Trader B has a margin balance of $10,000, and places a 0.5 BTC BTC-10APR22-42000-P. The order is fully filled at a trade price of $1,500. The current mark price is $1,600.

- Position MM = [Maximum (3% × 45,000, 3% × 1,600) + 1,600 + 0.2% × 45,000] × 0.5 = 1,520 USDC
- MM Ratio = 1,520/10,000 = 15.2%
- Position IM = Maximum [Maximum (15% × 45,000 − 3000, 10% × 45,000) + Maximum (1,500, 1,600)] × (0.5, 1,520) = 3,050 USDC
- Trading Fee = 0.5 × Minimum (0.03% × 45,000, 12.5% × 1,500) = 6.75 USDC
- Premium = 0.5 × 1,500 = 750 USDC
- Order IM = 3,050 + 6.75 − 750 = 2,306.75 USDC
- IM Ratio = 2,306.75/10,000 = 23.07%

**Notes:**

— In the regular margin mode, when the buyer places an order, the premium and trading fees will be occupied as the margin portion. Once the order is filled, the initial margin will be adjusted according to the filled order value and deducted from the cash balance.

— In the portfolio margin mode, the initial margin will not be occupied after the order is filled.