# Margin

Margin ensures that every option trade on ClickOptions is **fully secured** and that payout obligations can always be honored.\
The system distinguishes between two types of margin:

* **User Margin** – applies to traders who buy options
* **Vault Margin (Underwriter Margin)** –applies to ClickVault participants who underwrite option risk. 

### User Margin

**Simple and Limited**

* Option buyers only pay the premium upfront.
* There are no margin calls.
* Maximum risk = the premium paid.

This makes options buying safer and simpler than leveraged futures or perpetuals.

### Vault Margin (Underwriter Margin)

The **Vault** is the central margin pool that underwrites all written options.\
It contains:

* Collateral pledged by community contributors, market makers, and ClickOptions
* Collected premiums from all open option trades
* Unrealized PnL from open positions

Reserves and treasury buffers are kept **outside** VaultCapital. They act as additional protection layers (see [*Risk Assurance*](/trade/risk-assurance.md)).

#### Portfolio-Based Margin

Unlike traditional exchanges where each short option requires separate maintenance margin, ClickOptions uses a **portfolio model**:

* **Offsetting Risk** → Profits from calls offset premiums from puts
* **Delta-Based Controls** → Margin scales with net portfolio exposure, not per trade
* **Capital Efficiency** → Recognizes natural hedges across expiries/strikes, requiring less locked collateral

#### Step 1 – Delta Contribution per Option

$$
\Delta\_{portfolio} =
\sum \left( \Delta\_{call} \times Size\_{call} \right) +
\sum \left( \Delta\_{put} \times Size\_{put} \right)
$$

$$
\Delta\_{call}: 0 ;\to; 1
$$

$$
\Delta\_{put}: -1 ;\to; 0
$$

#### Step 2 – Net Exposure

$$
Exposure\_{net} = \Delta\_{portfolio} \times SpotPrice
$$

#### Step 3 – Non-linear Adjustment

Calls and puts do not perfectly hedge each other, especially when far ITM/OTM or during volatility spikes.

$$
Exposure\_{adjusted} = Exposure\_{net} + \kappa \times Vega\_{portfolio}
$$

Where:

$$
\kappa = \text{stress multiplier (volatility regime)}
$$

$$
Vega = \text{sensitivity to volatility}
$$

#### Coverage-Based Controls (Vault Utilization)

Instead of individual margin requirements per trade, ClickOptions uses **coverage ratios** based on Vault Capital vs. Adjusted Net Exposure:

$$
CoverageRatio = \frac{VaultCapital - \left| Exposure\_{adjusted} \right|}{\left| Exposure\_{adjusted} \right|}
$$

* If

$$
CoverageRatio < 0.5
$$

→ **ASK side disabled** for the exposed leg

$$
\Delta\_{portfolio} < 0 ; : ; \text{Calls disabled (ASK)}
$$

$$
\Delta\_{portfolio} > 0 ; : ; \text{Puts disabled (ASK)}
$$

* If

$$
CoverageRatio < 0.1
$$

→ **ASK and BID disabled** for the exposed leg (trading halted on that side).

**Example**

* VaultCapital = 1,000,000 USDT
* Adjusted Net Exposure = 800,000 USDT

$$
CoverageRatio = \frac{1{,}000{,}000 - 800{,}000}{800{,}000} = 0.25
$$

→ Coverage < 0.5 → **ASK side disabled**.

#### Market Maker Hedging via External Venues

Professional market makers may hedge exposure on external venues.\
ClickOptions integrates these positions into the Vault risk engine via **read-only API keys**.

* **Futures / Perpetuals**: reduce exposure **directly** by notional amount.
* **Options**: reduce exposure only through **delta contribution**.

NOP calculation with external hedges:

$$
Exposure\_{adjusted}^{hedged} =
\left( \Delta\_{portfolio} + \Delta\_{options}^{external} \right) \times IndexPrice

* FuturesNotional^{external}

- \kappa \times Vega\_{portfolio}
  $$

Connectivity is continuously monitored.\
If API data is delayed or unavailable, the system automatically reverts to **internal-only exposure** (hedges excluded).

**Important**

* External hedges reduce Vault exposure but their **PnL is not included** in VaultCapital (belongs to the MM).
* Only if ClickOptions executes hedges directly would hedge PnL be reflected in VaultCapital.

#### PnL Coverage Gate

If running losses on Vault positions exceed Vault Capital, exposed side quotes (BID/ASK) are halted entirely.

$$
\left| PnL\_{unrealized}^{loss} \right| \geq VaultCapital
;;\Rightarrow;; \text{Halt exposed side quotes}
$$

This ensures outstanding contracts remain solvent until expiry.


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