How To Use Margins In Option Trades

How to use margins in option trades

The following calculations apply only to Margin, IRA Margin and Cash or IRA Cash.

How to use margins in option trades

See our Portfolio Margin section for US Options requirements in a Portfolio Margin account.

FINRA and the NYSE have imposed rules to limit small investor day trading.

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Customers that these organizations classify as Pattern Day Traders are subject to special Day Trading Restrictions for U.S. securities.

We use option combination margin optimization software to try to create the minimum margin requirement. However, due to the system requirements required to determine the optimal solution, we cannot always guarantee the optimal combination in all cases.

Basics Of Trading Options With Margin [Episode 97]

Please note that we do not support option exercises, assignments or deliveries which may result in an account being non-compliant with margin requirements. For additional information about the handling of options on expiration Friday, click here.

Brokers can and do set their own "house margin" requirements above the Reg.

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T or statutory minimum. For option spreads in VIX securities, we may charge an additional minimum house margin requirement of $150.

How to use margins in option trades

For option positions that meet the definition of a "universal" spread under CBOE Rule 12.3(a)(5), we may charge an additional house requirement of 102% of the net maximum market loss associated with the spread (i.e., net long option position price – net short option position price * 102%), if greater than the statutory requirement.


Option Strategies

The following tables show option margin requirements for each type of margin combination.

Note:

These formulas make use of the functions Maximum (x, y, ..), Minimum (x, y, ..) and If (x, y, z). The Maximum function returns the greatest value of all parameters separated by commas within the paranthesis. As an example, Maximum (500, 2000, 1500) would return the value 2000.

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The Minimum function returns the least value of all parameters separated by commas within the paranthesis. As an example, Minimum (500, 2000, 1500) would return the value of 500.

The If function checks a condition and if true uses formula y and if false formula z. As an example If (20 < 0, 30, 60) would return the value 60.




Long Butterfly

Two short options of the same series (class, multiplier, strike price, expiration) offset by one long option of the same type (put or call) with a higher strike price and one long option of the same type with a lower strike price.

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All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.

Margin
Initial/RegT End of Day MarginNone
Maintenance MarginSame as Initial
Cash or IRA CashNone

Both options must be European-style cash-settled.
IRA MarginSame as Margin Account



Short Butterfly Put

Two long put options of the same series offset by one short put option with a higher strike price and one short put option with a lower strike price.

All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.

Margin
Initial/RegT End of Day MarginMAX(Highest Put Strike - Middle Put Strike, 0) +
MAX(Lowest Put Strike - Middle Put Strike, 0)
Maintenance MarginSame as Initial
Cash or IRA CashN/A
IRA MarginN/A



Short Butterfly Call

Two long call options of the same series offset by one short call option with a higher strike price and one short call option with a lower strike price.

How to use margins in option trades

All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.

Margin
Initial/RegT End of Day MarginMAX(Middle Call Options Strike - High Call Options Strike, 0) +
MAX(Middle Call Options Strike - Lowest Call Option Strike, 0)
Maintenance MarginMust maintain initial margin.
Cash or IRA CashN/A
IRA MarginN/A