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Options trading is famous for its versatility with leverage trading and hedging and for speculative purposes. Using Bybit Portfolio Margin for options trading elevates the trading process by streamlining one's assets in a single account, mitigating risk and improving overall returns. It enables portfolio diversification across multiple markets and asset classes, creating a more complex trading scene. We've put together a few strategies to help you trade more effectively with Bybit Portfolio Margin in different scenarios. Let's dive right into it.
Key Takeaways:
Bybit Unified Trading’s Portfolio Margin function allows traders to use less margin to trade with enhanced capital efficiency.
The activation of Portfolio Margin lowers the overall risks on your derivatives portfolio, offsetting the long and short position on options contracts by evaluating the mark price and market volatility.
The options trading strategies listed — delta hedging, bull spread and short strangle strategies — help traders protect their positions and increase their winning probabilities.
Portfolio Margin (PM) mode, a function of the Bybit Unified Trading Account (UTA), aims to help traders optimize the margin requirements of a portfolio. This function applies to USDT Derivatives accounts, where the long and short positions held across the Perpetual and Options contracts can be netted against one another.
Whenever a user activates Portfolio Margin mode, it rebalances the margin requirements based on the overall portfolio risks, rather than the individual positions. The system will reduce the margin requirements according to state-of-the-art algorithms and hedging techniques. For example, suppose you're using it on USDT Derivatives accounts, in which the long and short positions are held across the perpetual and options contracts. In that case, these positions will be netted against one another.
Learn more: How to use UTA for risk management
Crypto options and traditional crypto trading offer traders an opportunity to maximize profits using different trading strategies. However, options trading offers several distinct advantages from traditional trading products. The following are some examples.
For traders looking to manage risk and capitalize on market movement, options are a popular investment strategy. Crypto options, for example, are contracts that allow the trader to buy or sell an asset at a specified price within a given time frame or by a specific expiration date.
Suppose the option expires in-the-money (ITM). In that case, the trader's account will receive a credit or debit based on the cash difference between the strike price and the settlement price, without requiring them to actually buy or sell the underlying asset.
Learn more: How to hedge with crypto options
Options provide a gateway for retail traders to get started in crypto trading with minimal capital. When trading options, you’re buying a contract with a minimal entry price at a calculated risk to gain access to a large number of underlying assets. With leverage, options traders can multiply their buying power with minimal invested capital. In other words, the trader is leveraging the value of the underlying security for a maximum return on investment.
The following strategies use BTC Options as examples, but Bybit also supports Options trading for ETH, SOL, XRP, MNT and DOGE — all settled in USDT.
While options trading provides excellent ways to generate yield, writing (selling) options exposes traders to directional risks if the market moves against them. That’s where the delta hedging strategy comes in. By executing a delta-neutral strategy, traders can effectively manage their risk exposure while still profiting from collecting option premiums.
When traders sell an option, they can hedge their directional risk by opening a corresponding Perpetual contract position. As the price of the underlying asset fluctuates, the option's delta changes, requiring the trader to dynamically adjust their perpetual position to maintain delta neutrality.
For further clarity, let’s illustrate this with a hypothetical scenario.
Scenario:
Trader A expects BTC to remain relatively stable, and decides to collect a premium by selling a BTC call option. However, they want to protect themselves in case the price of BTC unexpectedly surges.
Trading strategy:
Trader A sells one BTC call option with a delta of 0.4. To neutralize the directional risk, they simultaneously go long on 0.4 BTC using a BTCUSDT Perpetual contract. As market prices shift and the option's delta changes, Trader A adjusts their Perpetual position to ensure their overall delta stays at zero. If the market remains relatively flat, the trader keeps the option premium as profit, without worrying about directional price swings. (Note: Bybit offers a dynamic delta hedging (DDH) tool that automatically adjusts your portfolio's delta every six seconds.)
Margin:
By using the Bybit UTA, traders can activate Portfolio Margin mode to significantly improve their capital efficiency. Instead of requiring a separate margin for the short call and the long Perpetual position — as it would in Cross Margin mode — Portfolio Margin recognizes the hedged nature of the trade, and nets the delta across both products. This significantly lowers the overall margin required to maintain the positions.
Traders can opt to use the bull spread approach to buy and sell call options on the same asset with different strike prices if they have a bullish outlook on the underlying crypto asset.
The concept is relatively simple and involves capitalizing on the price movement by buying a call option with a lower strike price, then selling a call option with a higher strike price to earn the differences in the form of a spread. Whenever the asset price rises, the purchased call option will increase while the value of the sold call option will decrease, which results in a net gain.
Learn more: What is a bull put spread strategy?
Scenario:
Trader A has a bullish perception on the price of BTC and chooses to open a bullish option strategy. Also, Trader A thinks that the volatility curve is too steep in BTC's options that are further out in expiry, and the implied volatility of out-of-the-money (OTM) options is overestimated compared with that of at-the-money (ATM) options. Therefore, Trader A buys ATM options and sells OTM options for BTC.
Trading strategy:
Suppose the current BTC price is $66,800. Trader A buys the BTCUSDT-29MAY26-67000-C contract with an expiration date of 56 days and sells the BTCUSDT-29MAY26-72000-C contract with the same expiration date. This grants Trader A a net positive delta of about 0.25 and a net debit in option premiums of about $1,200. In other words, this translates to a $0.25 profit for every dollar increase in BTC, with Trader A spending $1,200 to open a single bull call spread.
Margin:
Thanks to the use of UTA-PM and UTA-RM modes, overall capital efficiency is improved as the existing assets within the portfolio are consolidated and traders can avoid liquidation because of the lack of risk amplification from a single loss.
Traders use this strategy to write both call and put options simultaneously with the same expiration date but with a different strike price to profit from the premium after selling these options contracts.
Scenario:
In our hypothetical scenario, this involves Trader A selling an out-of-the-money call option and an out-of-the-money put option with a short-term expiration date. Traders profit from the premiums when selling the options whenever the strike prices for the two options remain within the range of the strike prices of the options contracts written
Trading strategy:
For example, Trader A trades BTC options and sells a call option with a strike price of 70,000 (BTCUSDT-3APR26-70000-C) and a put option with a strike price of 64,000 (BTCUSDT-3APR26-64000-P) while BTC is trading at $66,800. If BTC trades within the range of $64,000 to $70,000, Trader A profits as the out-of-the-money option contracts expire worthless, allowing them to keep the premium collected from when the option contracts were written.
Margin:
As writing naked crypto option contracts is considered risky, the margin demands involved with executing such an options strategy will be high. With UTA-PM, traders can write the call and put contracts without fear of liquidation because of the lowered margin requirements.
A combination of options trading strategies is widely used to help maximize and hedge against potential risks associated with the various types of options contracts. The use of portfolio margin can increase a user's capital efficiency with a lower margin involved. Still, options strategies are relatively complex for beginners, as they involve many other factors that may trigger a counter effect. Therefore, invest in options only if you’re confident with the fundamentals.
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