Margin Price Calculation
The calculation of the hedge position valuation or settlement depends on the contract type (futures, options or swaps).
A positive amount represents a profit. A negative amount represents a loss.
Futures Contracts
The Exercise Price of a futures contract is the amount of money paid (for a buy transaction) or received (for a sell transaction) at the maturity date. The exercise price may be fixed (the strike price) or the average of the prices in the price series over the quotation period.
The Market Price of a futures contract is the underlying value of the hedge position, based on the price in the price series at the maturity date.
The Margin Price of a futures contract depends on the transaction type:
Margin Price for a buy futures = Market Price - Exercise Price
Margin Price for a sell futures = Exercise Price - Market Price
The Net Margin Price of a futures contract considers the impact of the Premium. (The premium may be a negative number, in which case, the premium is effectively subtracted.)
Net Margin Price for a buy futures = Market Price - Exercise Price + Premium
Net Margin Price for a sell futures = Exercise Price - Market Price + Premium
Options Contracts
The Exercise Price of an options contract is the predetermined (fixed) amount of money paid (for a buy transaction) or received (for a sell transaction) if the options contract is executed. The exercise price is always fixed (the strike price).
The Market Price of an options contract is the underlying value of the hedge position, which is the average of the prices in the price series over the quotation period. The final market price is calculated when the options contract is executed.
The Margin Price of an options contract depends on the transaction type and option type:
Margin Price for a buy call option = MAX (Market Price - Exercise Price, 0)
Margin Price for a buy put option = MAX (Exercise Price - Market Price, 0)
Margin Price for a sell call option = MIN (Exercise Price - Market Price, 0)
Margin Price for a sell put option = MIN (Market Price - Exercise Price, 0)
The Net Margin Price considers the impact of the Premium, which is the amount of money paid to buy the right to the options contract. (The premium may be a negative number, in which case, the premium is effectively subtracted.) The premium must be paid, even if the options contract is withdrawn.
Net Margin Price for a buy call option = MAX (Market Price - Exercise Price, 0) + Premium
Net Margin Price for a buy put option = MAX (Exercise Price - Market Price, 0) + Premium
Net Margin Price for a sell call option = MIN (Exercise Price - Market Price, 0) + Premium
Net Margin Price for a sell put option = MIN (Market Price - Exercise Price, 0) + Premium
The exercise price and market price are also used to determine if the options contract is 'in the money'. An options contract is in the money if:
- The market price is greater than the exercise price for a call.
- The exercise price is greater than the market price for a put.
Options contracts can be configured to execute automatically if a valuation created by a hedge revaluation is in the money on the declaration date.
When an options contract is executed (either manually or via a hedge revaluation), a final settlement is created with a margin price, net margin price, profit/loss, net present value, and total value of zero.
The maximum loss of a call options contract is the premium multiplied by the allocated quantity plus the broker fee. If the loss would be greater, it is assumed that the options contract would be withdrawn rather than executed. For a put options contract, the premium multiplied by the allocated quantity minus the broker fee is the minimum profit.
The valuation calculations of an options contract also include an estimation of the contract's current pricing and risk sensitivity.
Spread Contracts
The Exercise Price of a leg of a spread contract is the strike price, which is the amount of money paid (for a buy transaction) or received (for a sell transaction) at the maturity date.
The Market Price of a leg of a spread contract is the underlying value of the hedge position, based on the price in the price series at the maturity date.
The Margin Price of a leg of a spread contract depends on the transaction type of the leg:
Margin Price for a buy leg = Market Price - Exercise Price
Margin Price for a sell leg = Exercise Price - Market Price
The Aggregated Profit/Loss of a spread contract is the sum of the profit or loss of both legs, and displays for each leg.
Settling one leg of a spread contract also settles the other leg. Because the legs of a spread contract have different maturity dates, it is possible for one leg to have a settlement while the other leg only has a valuation. Locking, deleting or changing the date of the valuation or settlement of one leg also locks, deletes or changes the date of the matching valuation or settlement of the other leg.
Swaps Contracts
The Exercise Price of a swaps contract is the amount of money paid (for a buy transaction) or received (for a sell transaction) at the maturity date. The exercise price is fixed by default (the strike price). However, in an Average/Average swap, the exercise price may be the average of the prices in the price series over the quotation period.
The Market Price of a swaps contract is the underlying value of the hedge position, which is the average of the prices in the price series over the quotation period.
The Margin Price of a swaps contract depends on the transaction type of the fixed hedge action in the swap:
Margin Price of a swap with a fixed buy hedge action = Market Price - Exercise Price
Margin Price of a swap with a fixed sell hedge action = Exercise Price - Market Price
Most simply, the margin price of a swaps contract is calculated:
Margin Price for any swap = Price of the sell hedge action in the swap - Price of the buy hedge action in the swap
Currency Conversions
If the margin price, premium and broker fee are not in the same currency, the premium and broker fee are converted to the currency of the price:
- For an FX hedge position, MineMarket uses the exchange rate source specified as the Default Series of the market commodity.
- For a physical commodity hedge position, MineMarket uses the default system exchange rate source.
