Vanilla Options

Forex Options Margin Policy

While the exposure is rather straightforwardly given as the notional amount on an FX spot or forward position, this is not the case with FX options. You will not be able to just use the notional amount on a complicated options strategy.

On many types of option strategies (the ones with unlimited risk), the FX Expiry Margin (which is the FX Options margin model) uses the margin rate on the underlying currency pair to calculate the margin requirement. So which margin rate should now be used for the margin calculation of this particular currency pair, when we do not have a single fixed margin rate considering it now depends on the level of exposure? The answer to this question is the blended margin rate based on the highest potential exposure across your FX and FX option positions in the currency pair.

FX Expiry Margin calculation

The margin requirement on FX Options is calculated per currency pair, ensuring alignment with the concept of tiered margins, and per maturity date. In each currency pair, there is a ceiling to the margin requirement that is the highest potential exposure across the FX Options and FX positions multiplied by the prevailing FX (spot) margin requirement. This calculation also takes into account potential netting between FX Options and FX spot and forward positions.

On limited risk strategies, e.g. a short call spread, the margin requirement on an FX Options portfolio is calculated as the maximum future loss.

Example:

You sell a call spread on 10M USDCAD at strikes 1.41 and 1.42. The current spot rate is 1.40. The margin requirement will be the maximum future loss of 71,429 USD (10M x (1.42 – 1.41) = 100,000 CAD / USD @ 1.40).

On unlimited risk strategies, e.g. naked short options, the margin requirement is calculated as the notional amount multiplied by the prevailing spot margin requirement.

Example:

You sell a 10M USDCAD put option. You have an unlimited downside risk. The margin requirement is therefore calculated as the notional amount multiplied by the prevailing spot margin requirement.

The prevailing spot margin rate is determined by the highest potential exposure, which is 10M USD. Thus, the prevailing spot rate is the blended margin rate of 2.2% ((1% x 3M USD + 2% x 2M USD + 3% x 5M USD) / 10M). The margin requirement is therefore 220,000 USD (2.2% x 10M USD).

Tiered margin rates are applicable to the FX Options margin calculation when your margin requirement is driven by the prevailing margin rate and not the maximum future loss. The prevailing spot margin levels are tiered based on USD notional amounts, the higher the notional amount potentially the higher the margin rate. The tiered margin requirement is calculated per currency pair. In the FX Options margin calculation, the prevailing spot margin requirement in each currency pair is the tiered or the blended margin rate determined on the basis of the highest potential exposure across the FX Options and FX positions.

For additional examples click here.

View FX Margin Policy.

 

Exotic Options

Touch Options

Though Touch Options are not margin products, positions will affect the amount you have 'Available for Margin Trading' as seen in your Account Summary.

Therefore, if margin positions are held on the account, the 'Margin Utilization' will increase when adding Touch Option positions.

Note that before opening the position a pre-check will be done to ensure that you cannot accidentally open a Touch Option position that will move the Margin Utilization above 100%.

Product Risk

Danish banks are required to categorise investment products offered to retail clients depending on the product’s complexity and risk as: green, yellow or red.

An option is categorised as a red product as it is considered an investment product with a high complexity and a high risk. See also the 'Product Risk Categorisation' located under our General Business Terms.

General Business Terms