Collateral Cost Reference

Understand how collateral carrying cost is calculated, what APR rates apply per asset, and how it affects the pricing of short option positions.

Key Concepts

Concept	Description
Reserve Price	The max (BUY) or min (SELL) acceptable total premium per contract
Collateral	Funds locked by the seller to secure the option; pulled at settlement
Collateral Cost	Opportunity cost of locked capital: amount × APR × time

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APR Rates

The SDK uses fixed annual percentage rates per collateral type:

Collateral	APR	Example
BTC (cbBTC)	1%	1 BTC locked for 1 year costs 0.01 BTC
ETH (WETH)	4%	1 ETH locked for 30 days costs ≈ 0.00329 ETH
USD (USDC)	7%	$2000 locked for 30 days costs ≈ $11.51

import { COLLATERAL_APR } from '@thetanuts-finance/thetanuts-client';

console.log(COLLATERAL_APR);
// { BTC: 0.01, ETH: 0.04, USD: 0.07 }

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Collateral Cost Formula

collateralCost = collateralValue × APR × timeToExpiry

Where timeToExpiry is expressed in years (e.g., 30 days = 30 / 365).

Vanilla Option Example

import { calculateCollateralCost } from '@thetanuts-finance/thetanuts-client';

// PUT option: 1 contract at strike 2000, 30 days to expiry, USDC collateral
const collateralUsd = 2000;
const timeToExpiryYears = 30 / 365;
const collateralType = 'USD';

const cost = calculateCollateralCost(collateralUsd, timeToExpiryYears, collateralType);
// cost = 2000 × 0.07 × (30/365) = $11.51

Spread Collateral Cost

For spreads, the carrying cost is based on the spread width (max loss), not the sum of individual leg costs.

import { calculateSpreadCollateralCost } from '@thetanuts-finance/thetanuts-client';

// CALL_SPREAD [2000, 2500]: width = $500
const widthUsd = 500;
const timeToExpiryYears = 30 / 365;

const spreadCC = calculateSpreadCollateralCost(widthUsd, timeToExpiryYears);
// spreadCC = 500 × 0.07 × (30/365) = $2.88

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How Carrying Cost Affects Pricing

Collateral cost is only relevant for short positions (sellers). It is subtracted from the bid price, representing the minimum premium a seller needs to cover their cost of capital.

Price Direction	Formula
Ask (long/buy)	rawAsk + feeAdjustment
Bid (short/sell)	rawBid - feeAdjustment - collateralCost

The byCollateral breakdown on ticker pricing exposes per-collateral MM prices:

import { ThetanutsClient } from '@thetanuts-finance/thetanuts-client';

const client = new ThetanutsClient({ chainId: 8453 });

const pricing = await client.mmPricing.getTickerPricing('ETH-16FEB26-1800-P');

// Fee-adjusted prices (no collateral cost applied)
console.log(pricing.feeAdjustedBid);
console.log(pricing.feeAdjustedAsk);

// MM prices per collateral type (collateral cost factored in)
console.log(pricing.byCollateral.USD.mmBidPrice);  // Lower than feeAdjustedBid
console.log(pricing.byCollateral.USD.mmAskPrice);  // Same as feeAdjustedAsk (buyers don't pay CC)
console.log(pricing.byCollateral.ETH.mmBidPrice);
console.log(pricing.byCollateral.ETH.mmAskPrice);

Position-Level Collateral Cost

getPositionPricing returns the carrying cost as an explicit field:

const position = await client.mmPricing.getPositionPricing({
  ticker: 'ETH-16FEB26-1800-P',
  isLong: false,          // Short = seller pays collateral cost
  numContracts: 5,
  collateralToken: 'USDC',
});

console.log(position.basePremium);     // Fee-adjusted price only
console.log(position.collateralCost);  // Carrying cost component
console.log(position.totalPrice);      // basePremium - collateralCost (for short)

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Collateral by Product Type

Different products lock different collateral amounts. The max loss per contract determines the collateral requirement.

Product	Collateral Locked (per contract)
PUT	strike USDC
INVERSE_CALL	1 WETH (or cbBTC for BTC)
LINEAR_CALL	strike USDC
CALL_SPREAD / PUT_SPREAD	upperStrike - lowerStrike USDC
IRON_CONDOR	max(putSpreadWidth, callSpreadWidth) USDC

For collateral calculations:

import { calculateCollateralRequired } from '@thetanuts-finance/thetanuts-client';

// PUT: 5 contracts at strike 2000 = 10000 USDC
calculateCollateralRequired(5, 'PUT', [2000]);
// Result: 10000

// CALL_SPREAD: 10 contracts, strikes [2000, 2500] = 5000 USDC
calculateCollateralRequired(10, 'CALL_SPREAD', [2000, 2500]);
// Result: 5000 (10 × 500 width)

// INVERSE_CALL: 10 contracts = 10 WETH
calculateCollateralRequired(10, 'INVERSE_CALL', [2000]);
// Result: 10

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See Also

• MM Pricing Overview - Fee adjustment formula and MMPricingModule methods

• Position & Spread Pricing - getPositionPricing and getSpreadPricing with collateral cost

• Filters & Utilities - Filter and sort helpers for pricing arrays