Options Specification

The options we offer are European, vanilla options. Currently, all options are financially settled, which means that no underlying asset (e.g. US Dollars) is transferred.

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:

• the general Options Guide, which includes intuitive presentation of option payoffs,
• our Option Quotations Guide, which describes ways the option contract can be quoted,
• our Options Valuation and Pricing Guide, which shows how to value inverse options properly, and
• the explanation of Put-Call Parity, which shows how to seamlessly trade and arbitrage between Quedex calls, puts and futures.

Parameters

Each option contract will have the following parameters:

• Underlying notional amount: how much is the contract worth. This is sometimes also referred to as the contract multiplier.
• Settlement index: what value is used to calculate the settlement value and margining price.
• Issue date: the date the contract goes live.
• Expiration date: the date the contract is settled.
• Initial and maintenance margin: how many bitcoins are locked in order to open the position (initial margin) and keep it open (Maintenance Margin).
• Option type: it may be a CALL or PUT option.
• Strike price: the price at which the option may be exercised at expiration.

Options' maturities

Currently, there are 2 contract maturities, expiring on Fridays 8:00 UTC, just as in the case of futures.

• quarterly, expiring on last Friday of March, June, September and December.
• long-term (custom expiration).

Margin calculations

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 * Quantity

where:

• 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),
• Quantity - either position or order quantity.

The increase in the margin requirements are offset by the gains, while any losses are accompanied by proportional decrease in Initial and Maintenance Margin. This means that the long option positions - at least on their own - can never go bankrupt (your account may still get liquidated if you have losses on other product types).

Short Position Margin is calculated as follows:

 Margin = Max(Margin Percent - OTM Percent, 0.5 * Margin Percent) * Futures Mark Price * Notional Amount * Quantity 

where:

• 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 as follows:

 Unsettled P/L = Position Side Sign * (Mark Price - Entry 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 * (Exit Price - Entry Price) * Notional Amount * Quantity

where (all other terms retain their meaning from previous formulas):

• Exit Price - the price at which the position is closed.

Settlement

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

where 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)

and Settlement Price calculation is explained in the Settlement article.