Option Margin

What is the 'Option Margin'

The option margin is the cash or securities an investor must deposit in his account as collateral before writing options. Margin requirements vary by option type. Margin requirements are established by the Federal Reserve Board in Regulation T; individual brokers may impose additional requirements. Brokers require investors to deposit margin funds because they may be needed to buy or sell underlying stocks if the options are exercised. They may also be needed to close losing positions.

BREAKING DOWN 'Option Margin'

Margin requirements for options trading are different from margin requirements for trading stocks or futures. Also, some options trading strategies have no margin requirement. This is because the underlying stock can be used as collateral. Neither covered calls nor covered puts have a margin requirement, for example.

RELATED TERMS
  1. Initial Margin

    The percentage of the purchase price of securities (that can ...
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  3. Buying On Margin

    The purchase of an asset by paying the margin and borrowing the ...
  4. Federal Call

    A special type of margin call requiring a trader to deposit sufficient ...
  5. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  6. Excess Margin Deposit

    Funds deposited in a trading account beyond what is required ...
Related Articles
  1. Trading

    Margin Trading: Conclusion

    Here's the bottom line on margin trading: You are more likely to lose lots of money (or make lots of money) when you invest on margin. Now let's recap other key points in this tutorial: ...
  2. Trading

    Margin Trading: What Is Buying On Margin?

    The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able ...
  3. Trading

    Intermediate Guide To E-Mini Futures Contracts - Margin

    Margin is essentially a loan that a brokerage firm extends to a client (the trader or investor) that is used for the purchase of trading instruments. Margin trading allows traders and investors ...
  4. Trading

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  5. Financial Advisor

    Margin Investing Gets A Bad Rap, But For The Thrill-Seeker, It's Worth It

    Investing on margin can be profitable but it's a risky play that needs care.
  6. Markets

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  7. Markets

    Margin Trading: The Dreaded Margin Call

    In the previous section, we discussed the two restrictions imposed on the amount you can borrow. First, the initial margin, which is the initial amount you can borrow. Second, the maintenance ...
  8. Trading

    Pick the Right Brokerage Account for Options Trading

    Follow these steps to pick the right options brokerage account depending on your trading needs and style of trading.
  9. Trading

    A Guide To Day Trading On Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  10. Trading

    Futures Fundamentals: Characteristics

    In the futures market, margin has a definition distinct from its definition in the stock market, where margin is the use of borrowed money to purchase securities. In the futures market, margin ...
RELATED FAQS
  1. Do you have to sell your stocks when you get a margin call?

    Understand the implications of a margin call and what an investor's options are when the stock he purchased on margin falls ... Read Answer >>
  2. How are margin calls regulated by the SEC?

    Learn how FINRA and the Federal Reserve Board regulate trading in margin accounts, and see how brokers can liquidate positions ... Read Answer >>
  3. Why does the Federal Reserve Board regulate which stocks can be bought on margin?

    Find out why the Federal Reserve Board began regulating margin stock purchases in 1934 and why margin requirements do not ... Read Answer >>
  4. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    Learn how FINRA and the Federal Reserve regulate margin account trading, and understand how pattern day trading can impact ... Read Answer >>
  5. What does it mean when I get a Fed margin call?

    Learn what a fed margin call is, what it means when you receive one and what steps you must take to satisfy the fed's requirements ... Read Answer >>
  6. What does it mean when I get a maintenance margin call?

    Understand how maintenance margin calls work, and learn about how margin requirements are different for trading stock versus ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center