Index Options Margin Requirements

1. Margin Requirements for Index Options Strategies

The follow strategies are eligible for margin requirement reductions:

● Vertical Spread

● Short Straddle

● Short Strangle

● Butterfly

● Condor

● Iron Butterfly

● Iron Condor

● Long Calendar Spread

● Long Diagonal Spread

The rules on margin requirement reductions are the same for index and stock options. For more information, refer to the help article "Margin Requirements for Options Strategies".


2. Special margin requirements for time spreads

Margin reductions apply to the time spreads of index options, including long calendar spreads and diagonal spreads, as they involve selling contracts with closer expiration dates while buying contracts with longer-term expiration dates.

When contracts with closer expiration dates expire, index options will be settled in cash, which may decrease the Equity with Loan Value (ELV) of your account and trigger a potential margin call.

Before the last trading day's market close of the near-month options, the margin requirement for long calendar and diagonal spreads of index options will be recalculated as if they were single-leg options. As a result, margin reductions will no longer apply.

When margin reductions no longer apply, if a margin call is triggered on your account due to insufficient funds, Futu HK may liquidate your holdings at any time.


3. Special Margin Requirements for VIX Options Strategies

Options pricing is determined by the current price and anticipated price movements of the underlying asset. Unlike options on stocks and stock indices, the VIX index option carries distinct risks as it is an index option on volatility.

3.1 VIX Can Change Suddenly and Drastically

The VIX, or Volatility Index, is calculated using options prices, specifically put and call options on the S&P 500 Index. This real-time market index represents the market's expectation of 30-day forward-looking volatility.

When implied volatility is high, the VIX increases correspondingly, potentially reaching very high levels. Conversely, when implied volatility is low, the VIX decreases correspondingly, reaching comparatively lower levels.

Due to the method of calculating the VIX index and its practical implications, various factors can suddenly provoke market panic, causing the VIX index to rise sharply. This means that changes in the index level can be both sudden and drastic, making the market risk for the VIX index higher compared to that of stock indices.

3.2 VIX Options Are Priced Based on VIX Futures

Stock options have tradable underlying assets, and there is hedging and replicability between stock trading and options trading, with stock options priced based on the price of the underlying stock. The underlying index of stock index options is not tradable, but replication of the index through its constituent stocks is possible, meaning stock index trading can be achieved through stock trading. Thus, stock index options are priced based on the price of the underlying index.

The VIX is a volatility index, which itself is not tradable and cannot be replicated. It is primarily traded through VIX futures (VXmain). Therefore, VIX index options are mainly priced based on VIX index futures and are only more influenced by the spot price of the VIX index as they approach expiration. There is a basis difference between the price of VIX futures and the VIX spot price, and there are calendar spreads between VIX futures with different expiration dates. This results in a risk structure for VIX option strategies that is significantly different from that of stock index options strategies.

Taking calendar spreads as an example:

● In the case of a long calendar spread strategy using SPX index options, the prices of both options in the spread are influenced by the SPX index price.

● In the case of a long calendar spread using VIX index options, the prices of both options in the spread are influenced by the VIX index level, but also by the basis differences between the two VIX futures.

The risk structure of a VIX index option calendar spread is more complex than the same strategy built on SPX.

Due to the unique risk attributes of VIX index options, VIX index options strategies are not eligible for margin requirement reductions. Margin requirements are calculated based on individual positions.