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.

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RELATED FAQS
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    Understand the implications of a margin call and what an investor's options are when the stock he purchased on margin falls ... Read Answer >>
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    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 >>
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  4. What are my options when I get a margin call?

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