Option Premium, Expiry Payoff & Margin: Worked Examples

Understand why an option strategy’s expiry diagram, entry premium and account margin describe different things.

Premium is the price, not the whole risk

Buying an option pays for a right; selling creates an obligation. A package combines the cash flows and payoffs of its legs. Its net premium may be small while the account still requires significant margin. Compare the contracts and obligations, not just the initial payment.

A call spread with explicit numbers

Illustration only, not a quote: buy one call with strike $100 for $8 and sell one call with strike $120 for $3. Net premium is $5 before fees. At expiry below $100, both calls pay zero and the package loses $5. At $110, the long call pays $10 and the short pays zero, leaving $5 profit. At or above $120, the payoff difference is capped at $20, so maximum expiry profit is $15 before fees. The break-even is $105.

These calculations assume equal quantities, the same underlying and expiry, and holding both legs through settlement. An early exit uses then-current option prices, not the expiry diagram.

A straddle needs enough movement

Illustration: a call and put at strike $100 cost $6 and $4. The $10 total premium is recovered at expiry at $90 or $110, before fees. Finishing exactly at $100 loses the full premium. The direction alone is not the key variable; the movement must be large enough relative to the price paid.

Why account margin is separate

Before expiry, option values depend on price, remaining time and implied volatility. A protocol evaluates account collateral and obligations under its margin rules. The combined account can contain other positions. A bounded package expiry payoff does not guarantee that the account cannot be liquidated before settlement. Removing one leg also changes the package.

Read Bitpont’s pricing basis

Reference bid/ask information supports analysis. A maker quote prices the exact requested package and has its own validity. The reference timestamp, quote timestamp, fees and quantity must be read together. A missing price cannot be filled in as zero. The settlement-price slider explores expiry scenarios; it is not a forecast or liquidation calculator.