FX Vanilla Options Margin

Margin Profile

The margin calculation for FX Vanilla Option at Saxo Bank take into account changes in:

  • Volatility
  • Spot price of the underlying asset
  • Already open positions

Delta and Vega Margin

The margin requirements for FX Vanilla Option positions at Saxo Bank consists of two components: Margin Required = Delta Margin + Vega Margin

  • Delta Margin - which is related to the  exposure to changes in the underlying Forex spot rate
  • Vega Margin - which is related to changes to the exposure in the volatility of the underlying Forex cross.

 

Delta Margin

The Delta of an FX Option position describes how the value of the option changes as a result of changes in the underlying FX spot rate.

The Delta of an FX Option position multiplied by the notional amount gives the underlying spot exposure of the position (i.e., Delta Exposure = Notional Amount * Delta). The spot exposure represents the size of the spot position required to hedge the FX option.
 
The calculation for the Delta Margin requirement of a Forex Option position is:
 
Delta Margin = Delta Exposure * Forex Spot Margin Requirement
 

When calculating the Delta Margin requirement for a new FX Option position, all of the portfolio’s current spot exposures at the client's account with Saxo Bank including any sub-accounts - both open FX spot positions and FX Option spot exposures – are considered.

Vega Margin

The Vega of an FX Vanilla Option position describes how the value of the FX Option position changes as a result of changes in the implied volatility of the underlying FX cross.

The calculation for the Vega Margin component of a Forex Option position is:

Vega Margin = Notional Amount * Vega * Max (Implied Volatility, Floor Value) * Volatility Factor

A floor value of 20% apply.

Read more about the Volatility Factors below.

Volatility Factor

Volatility Factors are set per Currency Pair and Expiry Date tenor (see table below). Between these Expiry Date tenors the Volatility Factors are interpolated (see graph below).
 
The Volatility Factors for short dated Expiry Dates are higher than those for long dated Expiry Dates because the volatility of a long-term Forex Option position is relatively less dynamic than a short-term Forex Option position.
 
When calculating the Vega Margin requirement for a Forex Option position, netting is performed across each Currency Pair for each Expiry Date. Thus, if a client has both bought and sold Forex Options in the same Currency Pair and for the same Expiry Date, the Vega Margin is calculated as the net of these positions.
 ​
See the sample calculation for an example of this.
 
The Volatility Factors used in the Vega Margin calculation for major and minor currency pairs are shown below in tabular and graphical form. As noted above, Volatility Factors are interpolated between the expiry date tenors.
 
TenorDaysMajor Currency PairsMinor currency Pairs
Short PositionsLong PositionsShort PositionsLong Positions
1 week728%-28%50%-50%
2 weeks1420%-20%25%-25%
1 month3011%-11%20%-20%
3 months908%-8%15%-15%
1 year3658%-8%10%-10%
 


The next table shows the categorisation of currencies for Major Currency Pairs. With respect to these Volatility Factors, a Major Currency Pair is one which includes BOTH of any of the currencies listed.
 
Major Currencies 
AUDJPY
CADNOK
CHFNZD
EURSEK
GBPUSD

Exceptions for bought Options

There is no margin required to hold long FX Vanilla Option positions if:

  • You hold no sold options, and
  • You hold no FX spot or forward positions in the same cross.
If you only hold bought FX Vanilla Options, then no margin is required to hold the FX Vanilla Option positions. However, cash is required to pay the Premiums for the bought Forex options.
 
If you, in addition to bought options, choose to trade in margin instruments (Spot forwards, or options) that would change the delta exposure in your existing portfolio. Hence, the Delta and Vega margin methodology applies to the entire portfolio in the given currency cross(es).
 
This would include an option being exercised into a Spot trade at expiry. Squared positions for FX Vanilla or Forex spot are not taken into consideration.

Risk Warning

Margin requirements can be changed without prior notice. Saxo Bank reserves the right to increase margin requirements for large position sizes, including client portfolios considered to be of very high risk.

Margin Trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors.

Ensure you fully understand the risks involved and seek independent advice if necessary.

See our Risk Warning.
Updated 21st January, 2015

FX Touch Options

Margin effect

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%.

Stop Out procedure

As FX Touch Options at Saxo Bank are not margin products, they are not included in a potential stop out.

It may happen that significant currency revaluation may increase the pay-out liability of a shorted Touch Option beyond the Account Value. In this case additional funds may be required to cover the short fall.

Updated 22 April 2014

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