Margin Requirements, Available Funds & Account Value
All option spreads require level 3 options approval and must be traded in a margin account. The following summarizes the margin that is required at the time of opening an options strategy in a margin account..
Strategy | Margin Requirement | Note |
|---|---|---|
Long Call or Long Put | 100% of the debit (premium paid) to open the position | |
Covered Call | No additional margin requirement when an equal number of underlying shares are held | |
(Naked) Short Put | The greater of the following (multiplied by the number of contracts x 100):
a] 20% of the underlying price minus the out-the-money amount plus the option premium
b] 10% of the strike price plus the option premium
c] $2.50 | The premium received from the sale of the short put may be applied to the margin requirement |
Debit Call Spread / Debit Put Spread | 100% of the net debit (premium paid) to open the position | |
Credit Call Spread / Credit Put Spread | The difference between the long and short strikes (spread width) multiplied by the number of contracts x 100 | The premium received (net credit) from opening the position may be applied to the margin requirement |
Iron Condor / Iron Butterfly | The spread width of either the short call spread or short put spread side of the strategy (the wider spread if not equal) multiplied by the number of contracts x 100 | The premium received (net credit) from opening the position may be applied to the margin requirement |
Available Funds is the cash that an account has available for opening new positions.
When you open a new position your account must have sufficient Available Funds to cover the margin requirement of the position, plus applicable commissions, regulatory, exchange and clearing fees.
Therefore, when you open a new position, your available funds will decrease by this amount.
Please note, since the premium received from opening a credit spread is applied to the margin requirement, it may not be used to open new positions and is not therefore reflected in the Available Funds balance.
Account Value is the sum of (a) available funds for trading, plus (b) the current mark-to-market value of any open positions.
Account balances can appear distorted or have an unexpected value for a number of reasons. These may include positions not yet having settled, early assignment of an options position or a corporate action taking place.
It may also be due the current mark-to-market value of an open position:
The mark-to-market value and implied profit/loss of less liquid option positions can be impacted by wide bid/ask spreads and/or stale last trade prices.
This may be exacerbated when calculating the position value of multi-leg options spreads, particularly since market makers are not obligated to trade at the NBBO.
As a result, the current value and implied P/L of all options positions should be viewed as indicative only and may not represent where actual market liquidity may currently be found.