What is Option Margin

Option margin is the cash or securities an investor must deposit in their account as collateral before writing—or selling—options. Margin requirements are established by the 澳洲幸运5官方开奖结果体彩网:Federal Reserve Board in 澳洲幸运5官方开奖结果体彩网:Regulation T and vary based on the type of option.

Basics of Option Margin

Option margin requirements are very complex and differ quite a bit from stocks or futures margin requirements. In the case of stocks and futures, a margin is used as leverage to increase buying power, whereas an option margin is used as 澳洲幸运5官方开奖结果体彩网:collateral to secure a position.

Minimum margin requirements for various types of underlying securities are established by FINRA and the options exchanges. Brokers may have very different margin requirements since they can add to the minimum requirements set by regulators. Some option strategies, such as 澳洲幸运5官方开奖结果体彩网:covered calls and covered puts, have no margin requirement since the underlying stock is used as collateral.

Traders must request options 澳洲幸运5官方开奖结果体彩网:trading authorization when opening a new account. Often, brokers will classify options trading clearance levels depending on the type of strategies employed. Buying options is typically a Level I clearance since it doesn't require margin, but selling 澳洲幸运5官方开奖结果体彩网:naked puts may require Level II clearances and a margin account. Level III and IV accounts often have lower margin req🔯u🌠irements.

Option margin requirements can have a significant impact on the profitability of a trade since it ties up capital. Complex strategies, such as 澳洲幸运5官方开奖结果体彩网:strangles and 澳洲幸运5官方开奖结果体彩网:straddles, may involve computing multiple margin requirements. Tr𝄹aders should determine the margin requirements for a trade before ente🎃ring into it and make sure that they can meet those requirements if the market turns against them.

How to Avoid Option Margin Requirements

ꩲCertain option positions do not require margins. For example, there are no margin requirements for long options, whether they are puts or calls. In other instances, 🌞traders can use several different strategies to avoid option margin requirements.

• Covered Calls and Covered Puts: Covered calls and covered puts involve owning the underlying stock, which is used as collateral in the option position. For example, if you own 500 shares of QQQ, you can sell to open five contracts of QQQ 澳洲幸运5官方开奖结果体彩网:call options without any margin.
• Debit Spreads: 澳洲幸运5官方开奖结果体彩网:Debit spreads involve buying in-the-money options and selling out-of-the-money options. In this case, the right to exercise the long option at a more favorable 澳洲幸运5官方开奖结果体彩网:strike price offsets the obligation to sell at the less favorable strike price, which means that no margin is required.

Calculating Option Margin Requirements

The easiest way to calculate option margin requirements is using the 澳洲幸运5官方开奖结果体彩网:Chicওago Board of Options E༒xchange (CBOE)  that provides exact margin requirements 𒉰for specific trades. Traders can also see🅠 the minimum requirements in the CBOE's . Brokerage accounts may have similar tools available to provide an idea of the cost before entering into a trade.