Risk Based Collateral Engine

Optio analyzes account risk to define collateral requirements.

Optio is employs a margining system that manages collateral in a risk-optimized way. Options position holders need only post sufficient collateral to cover the maximum scenario-risk loss for the entire account.

Workflow Recap:

• Before an option is listed for sale, a smart contract is minted and collateral locked.

• At the time of trade, option premium is transferred from buyer to seller.

• Once the trade is made, each participant will be either long or short an ERC-1155 smart contract. Holders can choose to hold until expiration or make trades to exit early.

  • If a user becomes long and short the same contract, she may cancel the position and reclaim collateral.

• At expiration, Optio will automatically settle the trade by calling functions inherent to the smart contracts themselves. This will result in the proper payoff of long and short positions in each contract.

  • Note that if a user was both long and short a contract in offsetting amounts that user's balance would not change.

After the trade, and before expiration, Optio ensures that the system itself has enough collateral to cover all open derivatives positions, however for the individual users, this collateral requirement may change depending on trades made.

Consider:

A user is short a put, and subsequently BUYS another put at a strike below the short.

Collateral requirement decreases, user may withdraw or trade with excess

Consider:

A user is long a put, and subsequently SELLS another put at a strike above the short.

Collateral requirement increases, trade is rejected if balance is insufficient

Consider:

A user is short a put, and long another put below it. A user has only the collateral necessary to maintain the position, and no more.

Withdrawals rejected AND user cannot sell the long put.