Options are standardized analogically to futures (these are so-called "inverse options"). Their underlying is BTCUSD exchange rate and each option has $1 notional value, which means that they are fully compatible for hedging and arbitrage with futures on Quedex and other exchanges, such as BitMEX, OKEx, Deribit or CryptoFacilities.
This article provides specification of Quedex options. For financial description and examples please see the following:
Each futures contract will have the following parameters:
Currently, there are at least 3 contract maturities, expiring on Fridays 8:00 UTC, just as in the case of futures.
Quedex employs futures-style margining of option positions. This means that premium does not change hands at the moment of transaction, but is transfered gradually as P/L and finally at settlement.
Long option position (the buyer) has initial and maintenance margin equal to the Option Premium:
Initial Margin = Maintenance Margin = Option Premium = Option Mark Price * Notional Amount
Option Mark Price- the theoretical value of the option calculated with a variant of Black'76 Model, using the Mark Price for relevant futures maturity and Mark Volatility as inputs.
Notional Amount- the number of the units of the underlying (also known as the multiplier)
Normally, the increase in the margin requirements are offset by the gains, while any losses are accompanied by proportional decrease in Initial and Maintenance Margin.
However, when socialization of losses occurs, Unsettled P/L from open positions can receive a haircut. If there is not enough Free Balance left, it may get liquidated. This is the only scenario in which long option positions may go bankrupt.
Short Position Margin is calculated as follows:
Margin = Max(Margin Percent - OTM Percent, 0.5 * Margin Percent) * Futures Mark Price * Notional Amount * Quantity
Margin- initial or maintenance margin
Margin Percent- initial or maintenance margin percent, respectively (value available on contract's details page)
OTM Percent- how much out of the money the option is in percentage points; if the option is at the money or in the money, this value is 0.
Futures Mark Price- current Mark Price of the futures contract with the same maturity in bitcoin notation,
Quantity- position quantity, which is positive for long positions and negative for short positions.
Calculations of the Unsettled P/L for open position are identical to futures Unsettled P/L calculation:
Unsettled P/L = Position Side Sign * (1 / Entry Price - 1 / Mark Price) * Notional Amount * Quantity
the terms used have the same meaning as above, and:
Position Side Sign- +1 for long position (you've bought the option) and -1 for short position (you've sold the option)
Entry Price- the price at which the position was opened
Mark Price- the same price as used for margin calculations; this means that the position can have positive or negative P/L immediately after opening
Calculations of the Realized P/L for open position are shown below:
Realized P/L = Position Side Sign * (1 / Entry Price - 1 / Exit Price) * Notional Amount * Quantity
where (all other terms retain their meaning from previous formulas):
Exit Price- the price at which the position is closed.
The options are settled on the expiration date immediately after the Closing Auction. Currently, all options are financially settled, which means that no USD is transferred. The P/L is calculated as usual, but the last time it is calculated it uses the Option Payoff instead of the Option Mark Price:
Settlement P/L = Position Side Sign * (Option Payoff - Entry Price) * Notional Amount * Quantity
Option Payoff is calculated differently depending on the Option Type:
Call Option Payoff = Max(0, 1 / Strike Price - 1 / Settlement Price)
Put Option Payoff = Max(0, 1 / Settlement Price - 1 / Strike Price)
Settlement Price calculation is explained in the settlement article.