Event Contract Collateral and Max Loss

Event contract collateral works one way: both sides post the full settlement value the moment the trade prints. A buyer at 60 cents pays 60 cents, the seller posts the other 40, and the whole dollar that will eventually be paid out sits with the clearing house until the market resolves. Neither side can be asked for more money later, and neither side can lose more than it already put up.

What full event contract collateral actually means

An event contract is a binary claim. It settles at $1.00 if the stated outcome occurred and $0.00 if it did not, and the resolution machinery itself is covered in how event contracts settle. Full collateral means the clearing house holds that entire $1.00 for the life of the contract, split between the two sides in proportion to the traded price. The panel below walks the price range from a nickel to 95 cents and shows the split at every step.

SELECT
    price_cents,
    toDecimal64(round(price_cents / 100, 2), 2)             AS buyer_pays_usd,
    toDecimal64(round((100 - price_cents) / 100, 2), 2)     AS seller_posts_usd,
    toDecimal64(round(price_cents / 100
                    + (100 - price_cents) / 100, 2), 2)     AS total_locked_usd
FROM
(
    SELECT arrayJoin(range(5, 100, 5)) AS price_cents
)
ORDER BY price_cents

At 5 cents the buyer puts up $0.05 and the seller puts up $0.95. At 95 cents the roles reverse. Across all 19 rows the third column never moves: $1 at the cheapest price and $1 at the dearest. That flat line is the whole mechanism. The payout is funded before the event happens, and settlement becomes a bookkeeping entry rather than a collection problem. It is also why the yes and no sides of one market are arithmetically tied together, the basis of yes and no side arbitrage.

Your maximum loss is the cash you already posted

Positions that are marked to market carry variation margin: cash that moves between accounts each session to cover the change in what a position is worth. That is the machinery behind a margin call. An event contract has no such step, since the full payout was collected at the start and nothing is left to collect. A buyer at 60 cents has a maximum loss of 60 cents per contract. The seller at that price has a maximum loss of 40 cents. Those are the same figures as the collateral columns above, known before the trade rather than estimated from a volatility model.

How a short option differs

Selling an option naked, without the shares or an offsetting contract behind it, is the opposite arrangement. The seller collects a premium up front and posts margin set by a formula, not the full exposure. A short call has no arithmetic ceiling on its loss, since the underlying price has no ceiling. A short put's worst case is the strike going to zero. Either way the requirement is recalculated every session against the current mark and the current underlying price. The panel below samples near the money SPY puts with 20 to 45 days to expiry across May and June 2026, one average per session.

SELECT
    toString(date)                                            AS session_date,
    formatDateTime(date, '%b %e')                             AS session_label,
    toDecimal64(round(avg(toFloat64(option_close)), 2), 2)    AS atm_put_mark,
    round(100 * avg(implied_volatility), 1)                   AS atm_iv_pct
FROM global_markets.options_greeks
WHERE underlying_symbol = 'SPY'
  AND lower(option_type) IN ('put', 'p')
  AND date >= '2026-05-01'
  AND date <  '2026-07-01'
  AND iv_converged = 1
  AND volume > 0
  AND days_to_expiry BETWEEN 20 AND 45
  AND underlying_close > 0
  AND abs(toFloat64(strike_price) / toFloat64(underlying_close) - 1) < 0.02
GROUP BY date
ORDER BY date

The window holds 41 sessions. On May 1 the sampled puts averaged $10.75, with average implied volatility, the expected future movement of the underlying stated as an annual percentage, at 14%. On Jun 30 the same measure printed $10.87 and 13.7%. Every session in between carries its own pair of numbers. A naked seller's requirement is recomputed against that moving input, which makes the cash needed a range rather than a fixed figure. The formulas are in margin for selling naked options.

Where futures sit

Futures margin is a third arrangement. Initial margin is a fraction of the contract's notional value, which is where the leverage comes from, and the position settles in cash every session. An adverse move debits the account that day, and once the balance drops below the maintenance level the broker issues a call. An unmet call ends in liquidation. How futures margin works walks the full sequence. Full collateral removes both halves of it: no leverage going in, no call coming through.

Return per dollar of collateral, per day

The trade is worth stating plainly. A capped, known loss comes in exchange for a 100% capital lockup and zero leverage. A contract bought at 60 cents ties up 60 cents until it resolves, whether that takes a week or eight months. Return per contract says nothing useful under those conditions. Return on the collateral posted, and then that figure per day held, is the yardstick that compares one contract with another.

SELECT
    price_cents,
    round(100 * (100 - price_cents) / price_cents, 1) AS buyer_return_on_collateral_pct,
    round(100 * price_cents / (100 - price_cents), 1) AS seller_return_on_collateral_pct,
    price_cents                                       AS breakeven_probability_pct
FROM
(
    SELECT arrayJoin(range(20, 85, 5)) AS price_cents
)
ORDER BY price_cents

At 20 cents, a buyer whose side resolves collects 400% on the collateral posted, against 25% for the seller at that same price. At 80 cents the two swap: 25% for the buyer and 400% for the seller. Cheap contracts pay large multiples and resolve in the buyer's favour rarely. Expensive contracts pay thin multiples and resolve that way often. The last column is the hinge. Pay 0.60 for a claim on 1.00 and the expected value is zero when the true chance of the outcome is 60%, so the price is the break even probability. The seller's arithmetic lands on the same number, collecting 0.60 against 0.40 at risk. That identity is the subject of event contract prices as probabilities.

The holding period is half the yardstick

Two contracts at the same price are not the same trade if one resolves in a week and the other in a year. The panel below fixes the price at 60 cents and varies only the time the collateral stays locked.

SELECT
    concat(toString(days_held), ' days')                          AS holding_period,
    round(100 * (100 - 60) / 60, 1)                               AS return_on_collateral_pct,
    round(100 * ((100 - 60) / 60) * (365 / days_held), 1)         AS simple_annualised_pct
FROM
(
    SELECT arrayJoin([7, 14, 30, 60, 90, 180, 365]) AS days_held
)
ORDER BY days_held

Return on collateral is flat at 66.7% in every row, since the price never changes. The annualised column falls from 3476.2% at 7 days down to 66.7% at 365 days, where the two columns meet. Held for 30 days, it prints 811.1%. Read these as arithmetic on a single outcome, not as forecasts or averages: the same contract gives up the entire 60 cents when it resolves the other way. What the column is good for is putting a short dated contract and a long dated one on one scale, the way a bill yield does.

Interest on posted collateral

Locked collateral is idle cash for the life of the contract, and some venues pay interest on it. Where they do, that interest is a real part of the return rather than a footnote. The reference point is the short end of the Treasury curve, the market rate on very short term cash.

SELECT
    toString(toStartOfMonth(date))                  AS month,
    formatDateTime(toStartOfMonth(date), '%b %Y')   AS month_label,
    round(avg(yield_1_month), 2)                    AS yield_1_month_pct,
    round(avg(yield_3_month), 2)                    AS yield_3_month_pct
FROM global_markets.treasury_yields
WHERE date >= addMonths(toStartOfMonth(today()), -17)
  AND yield_1_month > 0
  AND yield_3_month > 0
GROUP BY toStartOfMonth(date)
ORDER BY toStartOfMonth(date)

In Aug 2026 the 3 month bill averaged 3.89% against 3.79% at the 1 month point. Mar 2025, the oldest month in view, averaged 4.34%. Beside a contract held for a few weeks, a yield like that is a rounding error. Beside one held for most of a year it is a visible share of the outcome, and a venue paying nothing on posted collateral collects it in your place.

FAQ

Do event contracts have margin calls?

No. Both sides post the full settlement value when the trade prints, which leaves no variation margin to collect and no call to make. The most either side can lose is the amount already posted.

What is the maximum loss on an event contract?

For the buyer it is the price paid, per contract. For the seller it is the settlement value minus the price received. On a 35 cent contract the buyer risks 35 cents and the seller risks 65 cents, and both figures are fixed at the moment of the trade.

Are event contracts leveraged?

No. Every contract is funded to its maximum payout at trade time, so the position can never exceed the cash behind it. That is the price of the capped loss: the capital sits idle until the contract resolves.

How do I compare an event contract return with other trades?

Divide the profit by the collateral posted, then by the number of days that collateral is tied up. Return per contract hides the fact that a 90 cent contract locks up nine times the cash of a 10 cent one.

Does the price tell me the break even probability?

Yes. At a price of P out of $1.00, both sides have zero expected value when the true chance of the outcome is P. Above that level the buyer holds the edge, below it the seller does.

Every panel here ships with the SQL that produced it, so the arithmetic and its source are both open. To rebuild the collateral ladder at your own price and holding period, ask for it in plain English on the Strasmore terminal.