Price Limit and Position Limit Risk Control
Options price/position limits are an important means of preventing malicious market manipulation in the short-term. Simply put, there are upper and lower price limits and upper limits on position size.
- Price Limit Risk Control Parameters
Risk control using price limits follows certain guidelines. The buyer has to comply with the maximum price limit, while the seller has to comply with the minimum price limit.
Maximum price limit = Options mark price + Adjustment factor × Max (1, 4 × abs (delta))
Minimum price limit = Options mark price + Adjustment factor × Max (1, 4 × abs (delta))
- Position Limit Risk Control Parameters
- Single Order - Margin amount cannot exceed 40 BTC.
- Single contract - Current open order cannot exceed 6.
- Single contract - Total position amount cannot exceed 200BTC.
- Contracts with the same underlying index - Current unfilled orders cannot exceed 30.
- Contracts with the same underlying index - Total amount of open positions cannot exceed 2500 BTC.
- Contracts with the same underlying asset - Positions in the buying direction cannot exceed 1000 BTC.
- Contracts with the same underlying asset - Positions in the selling direction cannot exceed 1000 BTC.
Change in the Options price for every 1 USDT change in the price of the underlying asset.
Delta = Change in Options price / Change in the price of the underlying asset.
Delta is an important statistical indicator used in Options trading. It represents how much the price of the Options Contract changes in relation to the price of the underlying asset. In other words, it determines how much the price of an Options Contract will change, theoretically, when the price of the underlying asset changes by 1 USDT. For example, if the Delta value of a BTC/USDT call option is 0.5 and the price of the underlying asset increases by 1 USDT, the price of the Options Contract will increase by 0.5 USDT. While the price of a Call option increases as the price of the underlying asset increases, the price of a Put Option increases as the price of the underlying asset decreases. Therefore, the Delta value of Call Options will be greater than 0, while the Delta value for Put Options will be less than 0. In fact, the Delta value for Call Options will always be between 0 and 1, while the Delta value for Put Options will always be between -1 and 0.
The degree of the change in Delta for every 1 USDT change in the price of the underlying asset.
If the Delta is 0.6 and the Gamma is 0.05, then if the price of the underlying asset increases 1 USDT, the Delta will increase by 0.05. The Delta will increase from 0.6 to 0.65.
Since Options frequently become In-the-money or Out-of-the-money when the exercise time draws near, the Delta value becomes extremely sensitive to changes in the price of the underlying asset. Spot fluctuations often lead to bigger changes in Delta value. At this time, the Gamma value becomes particularly important. The Gamma value is always a positive number.
As the time to exercise the Options draws near, a slight increase in the last exercise price causes the Delta value of the Options Contracts to change from closer to 0 to closer to 1, which produces a high Gamma value. This is especially true when the Exercise Price is extremely close to the Strike Price. In this situation, the risk is relatively greater since the price of the underlying asset only has to fall a little bit in order to render the would-be profitable Call Options worthless. Typically, the higher the Gamma, the higher the risk; the lower the Gamma, the lower the risk. This is also referred to as Gamma Risk.
The degree of change in the price of an Options Contract during a given period of time (usually a day). We often call this the time value of Options Contracts.
Theta values are usually negative because the price of an Options Contract usually decreases over time.
The longer until the exercise time of an Options and the more uncertain factors there are, the greater the time value of the Options. In theory, the shorter until the Options exercise time, the greater the Theta value of the Options. This is because as the Options exercise time approaches, the time value of the Options decreases more rapidly. In particular, as Out-of-the-money Options approach the exercise time, their value moves closer to 0. At this time, time decay occurs especially fast, and massive Options price decay is often seen in the last time period before the exercise time.
Vega = Change in Options price / Change in rate of the volatility of the underlying asset.
If Vega = 0.2, the price of the Options increases 0.2 when there is a 1% change in the rate of the volatility of the underlying asset.
Just like the Mark Price, the Options Contract Price fluctuates constantly. However, fluctuations in Mark Price and fluctuations in the Options Contract Price do not appear to have a direct linear relationship. Stocks that have more violent price fluctuations usually cause the price of the corresponding Options Contracts to become inflated, but under certain circumstances, changes in stock price can also cause very small changes in the Options Contract Price.
Regardless of the reason, the importance of Vega only becomes more clear when there are drastic changes in stock price.
Note: In the above example, the Options conversion ratio is 1 Options Contract to 1 BTC.