Option Margin


DEFINITION of 'Option Margin'

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.

  1. Maintenance Margin

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

    The purchase of an asset by paying the margin and borrowing the ...
  3. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  4. Naked Call

    An options strategy in which an investor writes (sells) call ...
  5. Covered Call

    An options strategy whereby an investor holds a long position ...
  6. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
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  1. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
  6. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>

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