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
  1. 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 >>
  2. 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 >>
  3. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

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  4. What does it mean when I get a maintenance margin call?

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  5. How much can I borrow with a margin account?

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