Porfolio Margin
The inner workings of GRVT's Portfolio Margin
The Portfolio Margin algorithm takes a ValueatRisk (VaR) approach to compute margins.
Simulation Charge — It simulates the max loss that the portfolio will suffer during spot/volatility movements and applies the max loss as a charge.
Calendar Spread Charge — To account for the basis risk of calendar spread positions, GRVT applies a Calendar Spread charge.
Intermarket Spread Credits — To recognize the riskreducing aspects of portfolios containing offsetting positions in highly correlated instruments, GRVT reduces margins via Intermarket Spread Credits.
Net Short Option Minimum — To capture the risk of deep outofthemoney short options, which are not well covered by other aspects of the Portfolio Margin algorithm.
Simulation Charge
Max Loss Simulations subjects the portfolio to a series of spot/volatility movements, determines the max loss that the portfolio will suffer in these simulations, and uses the results to determine the appropriate charge.
The table below simulates a 20% price move scan and 45% vol move scan.
Regular Scans
The maxloss simulations will compute a total of 14 standard scans:
7 Spot Move Scans
[100%, 67%, 33%, 0%, 33%, 67%, 100%]
of configuredSPOT_MOVE
e.g. For
SPOT_MOVE = 20%
,[20%, 13.33 %, 6.67%, 0%, 6.67%, 13.33%, 20%]
2 Vol Move Scans
[100%, 100%]
of configuredVOL_MOVE
Extreme Spot Scans
Further outofthemoney short options may pose a significant risk, as unusually large price changes may result in unexpectedly large losses, particularly as expiration nears. GRVT accounts for this risk by including Extreme Scenarios in the maxloss simulations.
This is done by adding on 2 extreme range scans:
300% EXTREME_SPOT_MOVE, +100% VOL_MOVE
+300% EXTREME_SPOT_MOVE, +100% VOL_MOVE
The resulting gain or loss is then multiplied by EXTREME_DISCOUNT
to determine the potential exposure.
To demonstrate how this works, consider the following scenario:
Parameters
SPOT_MOVE = 20%
VOL_MOVE = 45%
EXTREME_SPOT_MOVE = 60%
EXTREME_DISCOUNT = 33%
Computed Max Loss
Regular Scan Max Loss = 289k
Extreme Scan 1 PnL = 600k
Extreme Scan 2 PnL = 550k
Resultant Max Loss
Max Loss = min(289k, 600k * 0.33, 550k * 0.33) = 289k
Parameters
The following parameters are used in our maxloss simulations (per asset config):
Calendar Spread Charge
Calendar Spread Charge ensures that the GRVT risk engine takes the basis risk of calendar spread positions into account. When an option/future contract expires, the portfolio’s delta may shift substantially, and result in a large spike in risk.
Consider a portfolio with the following positions:
+1000 BTC perps
1000 BTC futures (expires in 1 days)
The max loss simulations will require the portfolio to post 0 margins since it is perfectly delta & vega hedged; It is incapable of computing calendar/expiration/theta risk. As such, GRVT applies a calendar spread charge to account for calendar risk.
Our algorithm only applies spread charges for portfolio delta shifts in a 1day lookahead period. The spread charge is proportional to the portfolio delta, and unit charge amount increases linearly from 0 to future position charge as expiring positions approach.
It works as follows:
For each market (BTC/ETH/etc)
Compute Portfolio Delta for the next 1day of expiry
Day 0 + 10 Portfolio Delta
Day 1  60 Portfolio Delta
Gravity will apply a futures charge based on the difference in absolute delta (eg. +50 Delta)
Net Short Option Minimum
Deep outofthemoney short options may incur zero or minimal simulation charge, and similarly, its risk is not captured on the calendar spread charge. When market volatility is extreme, these options may move closer tothemoney or inthemoney, thereby generating potentially large losses. To capture this risk adequately, Gravity introduces a Net Short Option Minimum component.
Whilst most other exchanges would implement a Short Option Minimum component, Gravity has opted to only charge a minimum for short options positions without fully hedged downsides. In other words, Gravity’s algorithm considers the riskreducing aspects of long options positions.
As the above formulas show, the Net Short Option Minimum component is typically not charged along with the rest of the portfolio margin components. It behaves purely as a safety buffer to properly capture the risk of portfolios that hold a large net short option position.
Computing Net Short Option Size
The net short option size describes the number of short options positions without fully hedged downsides. It is computed using the below methodology.
Consider the following portfolio:
Call Position  Strike Price  Put Position 

+40  1100  +160 
90  1200  +40 
+70  1300 

 1400  60 
30  1500 

First, we calculate the Net Calls Above Strike. This is done by cumulatively rolling up the call positions at each strike from the lowest strike to the highest strike.
It takes advantage of the following property: A long call option at a lower strike price will completely cover the downside risk of a short call option at a higher strike price.
Strike Price  Call Position  Net Calls Above Strike 

1100  +40  +40 
1200  90  50 
1300  +70  +20 
1400 
 +20 
1500  30  10 
The Net Calls Above Strike metric measures the number of inthemoney/outofthemoney call option contracts if the option were to settle above the strike price.
If the option settles in the range of [1201  1299], a net of 50 call option contracts settles outofthemoney.
If the option settles in the range of [1301  1499], a net of 20 call option contracts settles inthemoney.
Then, we calculate the Net Puts Below Strike. This is done by cumulatively rolling up the put positions at each strike from the highest strike to the lowest strike.
It takes advantage of the following property: A long put option at a higher strike price will completely cover the downside risk of a short put option at a lower strike price.
Strike Price  Put Position  Net Puts Below Strike 

1100  +160  +180 
1200  +40  +20 
1300 
 60 
1400  60  60 
1500 
 0 
The Net Puts Below Strike metric measures the number of inthemoney/outofthemoney put option contracts if the option were to settle below the strike price.
If the option settles in the range of [1101  1199], a net of 20 put option contracts settles inthemoney.
If the option settles in the range of [1201  1399], a net of 60 put option contracts settles outofthemoney.
Lastly, we compute the Net Short Option Size. This is done by adding the Net Calls Above Strike and Net Puts Below Strike values for each settled price range, then taking the minimum size seen.
Settled Price Range  Net Calls In Range  Net Puts In Range  Net Options In Range 

[<=1099] 
 +180  +180 
[1101  1199]  +40  +20  +60 
[1201  1299]  50  60  110 
[1301  1399]  +20  60  40 
[1401  1499]  +20  0  +20 
[>=1501]  10 
 10 
The Net Options In Range metric measures the number of inthemoney/outofthemoney option contracts if the options were to settle in the defined settled price range.
If the option settles in the range of [1101  1199], a net of 60 option contracts settles inthemoney.
If the option settles in the range of [1201  1299], a net of 110 option contracts settles outofthemoney.
Hence, the Net Short Option Size will take on the minimal size seen of 110.
Minimum Charge
Minimum Charge
The minimum charge applied by the Net Short Option Minimum component takes on the following simple formula.
In other words, given that NET_SHORT_OPTION_CHARGE = 12.5%
, portfolios that purely short deep outofthemoney options can still receive up to 8x leverage.
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