This post will describe the Portfolio Margin system used at Deribit, a bitcoin derivatives exchange. Portfolio margin is a risk-based margin policy that aligns margin requirements with the overall risk of a portfolio. Portfolio margin usually results in significantly lower margin requirements compared with the sum of margin requirements on individual positions. If a portfolio is long and short, portfolio margin can allow the risk of positions to be “netted off” which may result in an lower overall margin requirement.

I’m most familiar with the CME SPAN margin system which is used to evaluate the risk of futures and options portfolios, but the same general principals apply to Deribit portfolio margin.

Deribit users can request to have portfolio margin applied to their account by e-mailing [email protected] To qualify, Deribit users must maintain a minimum net equity of at least 0.5 bitcoins, must demonstrate some experience trading options, and declare to have understanding about the concept of portfolio margin.

**Here is how Deribit determines portfolio margin:**

- maximum price move of +/- 10.00%
- maximum implied volatility change of SQRT (30/days to expiration)*27.00%. Example: options expiring in 30 days: IV change of maximum 27.00%, options expiring in 15 days: IV change of maximum SQRT (30/15)*27.00%
- Contingency component of 0.5% of underlying value of all options in portfolio. Example: you have 200 options in your position (long and short), 0.5% of 200 BTC = 1 BTC is added to the portfolio margin calculation.
- Contingency component of 1.00% of underlying value is added for offsetting futures. Example: you are long 100 BTC in Future A, and short 100 BTC in Future B, then 1.00%*100 BTC will be added to the portfolio margin calculation.
- Contingency component of 0.00% for VEGA’s offsetting in different expirations. Example: you are net long 10 VEGA in expirations A/B/C, and net short 10 VEGA in expirations D/E/F, we will add a contingency of 0.00% thereof to the portfolio margin calculation.
- Initial margin is Maintenance Margin + 30%. Example: If Maintenance Margin is 10 BTC, Initial margin will be 10 BTC+30% = 13 BTC.

Deribit also notes that when liquidating positions, it will start with futures first. This is presumably because the futures contracts are more liquid. Deribit also says that when margin levels are breached, they may liquidate futures first, but may also add futures positions if it reduces overall portfolio risk. For example, if a portfolio is net short puts, Deribit may add short futures instead of buying back puts to achieve minimum margin requirements.