Event Contract Collateral and Max Loss Explained

Collateral for event contracts dey work one way: both sides post the full settlement value immediately when the trade prints. Buyer wey enter at 60 cents dey pay 60 cents, while seller post the remaining 40 cents. The full one dollar wey go eventually pay out dey with the clearing house until the market resolves. Nobody fit ask either side for extra money later, and neither side fit lose pass wetin e don already put up.

Wetin full event contract collateral really mean

Event contract na binary claim. E go settle at $1.00 if the stated outcome happen, and $0.00 if e no happen. The resolution process itself dey explained for how event contracts dey settle. Full collateral mean say clearing house hold the complete $1.00 for the whole life of the contract. Dem split am between the two sides according to the traded price. The panel below dey show price range from nickel reach 95 cents, plus how dem split am for 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

For 5 cents, buyer dey provide $0.05 and seller dey provide $0.95. For 95 cents, the roles turn around. Across all 19 rows, the third column no dey change: $1 for the cheapest price and $1 for the highest price. That flat line na the whole mechanism. Dem fund the payout before the event happen, so settlement become bookkeeping entry instead of collection problem. Na also why the yes and no sides of one market dey mathematically tied together, and na the basis of yes and no side arbitrage.

Your maximum loss na the cash wey you don post already

Positions wey dey marked to market get variation margin: na cash wey dey move between accounts every session to cover the change for wetin position worth. Na this process dey support margin call. Event contract no get this step, because dem don collect the full payout from the start and nothing remain to collect. Buyer wey enter at 60 cents get maximum loss of 60 cents per contract. Seller for that price get maximum loss of 40 cents. Na the same figures wey dey for collateral columns above, and dem dey known before trade, instead of estimating dem from volatility model.

Short option dey different

To sell option naked, without the shares or another contract wey go offset am, na the opposite arrangement. Seller collect premium upfront and post margin wey formula set, no be the full exposure. Short call loss no get arithmetic ceiling, because underlying price no get ceiling. For short put, worst case na when strike price go zero. For both cases, dem dey recalculate requirement every session against current mark and current underlying price. The panel below sample near-the-money SPY puts wey get 20 to 45 days to expiry across May and June 2026, with one average for each 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 get 41 sessions. For May 1, the sampled puts average $10.75, while average implied volatility — the expected future movement of the underlying, stated as annual percentage — stand at 14%. For Jun 30, the same measure print $10.87 and 13.7%. Every session between dem get its own pair of numbers. Dem dey recalculate naked seller’s requirement against that changing input, so the cash wey person need na range, no be fixed figure. The formulas dey for margin for selling naked options.

Wey futures dey

Futures margin na another arrangement. Initial margin na small part of the contract’s notional value, and na from there leverage dey come. The position dey settle for cash every trading session. If market move against you, dem debit your account that same day. Once the balance fall below maintenance level, broker go issue margin call. If you no meet the call, dem go liquidate the position. How futures margin dey work explain the full sequence. Full collateral remove both sides of the issue: no leverage when you enter, and no call go come later.

Return per dollar of collateral, per day

Make we talk the trade plain. You accept a capped, known loss in exchange for locking up 100% of the capital with zero leverage. Contract wey you buy for 60 cents go tie up 60 cents until e resolve, whether na one week or eight months. Return per contract no tell you anything useful for this situation. The right yardstick to compare one contract with another na return on the collateral posted, then divide that figure by the number of days you hold am.

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, buyer wey e side resolve go collect 400% on the collateral posted, against 25% for seller at that same price. At 80 cents, the two sides swap: 25% for buyer and 400% for seller. Cheap contracts fit pay big multiples, but dem rarely resolve for buyer. Expensive contracts pay small multiples, but dem often resolve that way. The last column na the key point. If you pay 0.60 for claim on 1.00, expected value na zero when the true chance of the outcome na 60%. So, the price na the break-even probability. Seller calculation reach the same number: seller collect 0.60 against 0.40 wey e put at risk. Na this identity dey explain event contract prices as probabilities.

Holding period na half of the yardstick

Two contracts wey dey same price no be the same trade if one go resolve for one week and the other one for one year. The panel below fix price at 60 cents and change only the time wey collateral remain 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 dey flat at 66.7% for every row, because price no change. The annualised column fall from 3476.2% for 7 days down to 66.7% for 365 days, where the two columns meet. If dem hold am for 30 days, e print 811.1%. Read these figures as arithmetic for one outcome, no be forecast or average: the same contract go lose the full 60 cents if e resolve the other way. Wetin the column useful for na to put short dated contract and long dated contract on one scale, the same way bill yield dey do.

Interest wey dey come from collateral wey you post

Locked collateral na cash wey dey idle throughout the contract, and some venues dey pay interest on am. Where dem dey pay, that interest na real part of the return, no be small footnote. The reference point na the short end of the Treasury curve, meaning the market rate for 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)

For Aug 2026, the 3 month bill average na 3.89%, compared with 3.79% for the 1 month point. Mar 2025, wey be the oldest month wey we dey look, average na 4.34%. If na contract wey you hold for some weeks, yield like that na small rounding error. But if you hold am for most of one year, e become visible part of the result. Venue wey no pay anything on posted collateral dey collect that interest for your side.

FAQ

Event contracts dey get margin calls?

No. Both sides post the full settlement value when the trade prints. So no variation margin remain to collect, and nobody get call to make. The most either side fit lose na the amount wey e don already post.

Wetin be the maximum loss for event contract?

For buyer, na the price wey e pay per contract. For seller, na settlement value minus the price wey e receive. For 35 cent contract, buyer risk 35 cents and seller risk 65 cents. Both figures fixed when the trade happen.

Event contracts dey use leverage?

No. Every contract get funding up to e maximum payout when trade happen. So the position no fit pass the cash wey back am. Na this be the cost of capped loss: the capital go sit idle until the contract resolve.

How I fit compare event contract return with other trades?

Divide the profit by the collateral wey you post. Then divide the result by the number of days wey that collateral dey tied up. Return per contract fit hide say 90 cent contract lock up nine times the cash of 10 cent contract.

The price dey tell me the break-even probability?

Yes. If price na P out of $1.00, both sides get zero expected value when the true chance of the outcome na P. Above that level, buyer get the edge. Below am, seller get the edge.

Every panel for here come with the SQL wey produce am, so both the arithmetic and source dey open. If you wan rebuild the collateral ladder with your own price and holding period, ask for am in plain English on the Strasmore terminal.