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Strategy-based Margin

Strategy-based Margin

Strategy-based margin rules have been applied to option customers' positions for more than three decades. (Please note that, as an alternative to the strategy-based margin rules, new portfolio margining rules also may be applied to certain customer accounts.)

Margin Requirements Examples for Sample Options-based Positions.

A 2007 table providing comparisons of strategy-based and portfolio margin requirements for 38 different positions.

CBOE Margin Manual (41-page PDF)

This manual (in PDF format) has been developed by CBOE to assist the margin personnel of member firms as well as to serve as a guide to all users of options. The requirements explained here are based on publication date rules and regulations, and therefore, subject to change. This manual should be used as a reference document and is not intended to be an all-encompassing restatement of Federal Reserve Board and Exchange margin rules. Persons using this manual should be familiar with margin computational methods and procedures as well as the margin requirements for all types of securities.

CBOE Margin Calculator

This online calculator contains a description of Exchange margin requirements for various positions in put options, call options, combination put-call positions and underlying positions offset by option positions. The equity and index option strategies available for selection in this calculator are among those most widely used by investors. Margin amounts computed by this calculator reflect exchange-minimum requirements of the Chicago Board Options Exchange. Margin amounts required by specific brokerage firms may be higher. Further, this calculator's computations reflect only the Exchange's initial margin requirements; ongoing maintenance margin requirements may be necessary, and are indicated where appropriate but not calculated.

Overview of Margin Requirements for Options

In the stock market, "margin" refers to buying stock or selling stock short on credit. A margin customer pays for half (50%) of the cost of buying stock (the margin) and the brokerage firm lends the customer the balance. Margin customers are required to keep securities on deposit with their brokerage firms as collateral for their borrowings. Buyers of options can now buy equity options and equity index options on margin, provided the option has more than nine (9) months until expiration. The initial(maintenance) margin requirement is 75% of the cost(market value) of a listed, long term equity or equity index put or call option. One who takes a "long" position in a non-marginable put option or call option is required to pay the premium amount in full.

In the options market, "margin" also means the cash or securities required to be deposited by an option writer with his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest, or in the case of cash-settled options to pay the cash settlement amount, if assigned an exercise. Minimum margin requirements currently are imposed by the options markets and other self-regulatory organizations, and higher margin requirements may be imposed either generally or for certain positions by the various brokerage firms.

Uncovered writers may have to meet calls for substantial additional margin in the event of adverse market movements. Even if a writer has enough equity in his account to avoid a margin call, increased margin requirements on his option positions will make that equity unavailable for other purposes.

If a holder of a physical delivery call option exercises and wishes to purchase the underlying interest on credit, the holder may be required to deposit margin with the holder's brokerage firm. Holders of physical delivery options on a foreign currency should be aware that, at the date of this booklet, foreign currency has no value for margin purposes except to the extent that credit has been extended on the same foreign currency.

Certain limited risk spreads, butterfly spreads and box spreads (collectively referred to as "spreads") may now be established and carried in a cash account. Provided the spread is composed of European style, cash settled index options that all expire at the same time, it may be effected in the cash account. Butterfly spreads and box spreads must meet the definition contained in Exchange's Rule 12.3(a). The requirement for debit (or long) spreads is to pay for the net debit in full. For credit (or short) spreads, cash or cash equivalents equal to the maximum risk (less the net credit received for selling the spread) must be deposited and held in the account.

Exchange rules also provide for lower maintenance margin requirements for the underlying instrument in certain strategies that employ a long American style option as a hedge.

Margin requirements for option writers are complex and are not the same for every type of underlying interest. Margin requirements are subject to change, and may vary from brokerage firm to brokerage firm. However, margin requirements can have an important effect on an option writer's risks and opportunities. Persons considering writing options (whether alone or as part of multiple position strategies, such as spreads or straddles) should determine the applicable margin requirements from their brokerage firms and be sure that they have sufficient liquid assets to meet those requirements in the event of adverse market movements.



Margin Requirements for Certain Options Positions

This schedule contains a description of Exchange margin requirements for various positions in put options, call options, and underlying positions offset by call option positions. Positions may be margined separately to obtain the lowest requirement. The CBOE's Margin Manual has detailed information on other options positions, including spreads and straddles/combinations.

Position

Option Type

Cash Account Initial Requirement

Margin Account Initial Requirement

Margin Account Maintenance Requirement

Long Put or Long Call - 9 months or less until expiration

Equity; Broad and Narrow Based Indexes; Interest Rate Options; Long CAPS

Pay for each put or call in full.

Pay for each put or call in full. Cash need not be deposited in excess of put or call cost.

None required.

Long Put or Long Call - more than 9 months until expiration

Equity; Broad and Narrow Based Equity Indexes only. Other than equity options and broad-based and narrow-based equity index options, only stock index warrants are eligible for purchase on margin. [For all other option types, the requirement is the same as for a 9 month or less option (above).]

Pay for each put or call in full.

Listed 75% of the total cost of the option. OTC 75% of the intrinsic value (in-the-money amount) of the option plus 100% of the amount by which the option's purchase price exceeds its in-the-money amount. OTC option must be guaranteed by the carrying broker-dealer.

Listed 75% of option market value. OTC 75% of the intrinsic value of the option. Note that in either case, the option has no value for margin purposes when time remaining to expiration reaches 9 months.

Short Put or Short Call

Broad-based Index

Deposit cash or cash equivalents equal to aggregate exercise price or escrow agreement for a short put. Deposit broad based index option escrow receipt for a short call. Sale proceeds not released until deposit is made.

100% of option proceeds plus 15% of underlying index value less out-of-the-money amount, if any, to a minimum of option proceeds plus 10% of underlying index value for calls; 10% of the put exercise price for puts.

For each short option, 100% of option market value plus 15% of the underlying index value less the out-of-the-money amount, if any, to a minimum of option market value plus 10% of underlying index value for calls; 10% of the put exercise price for puts.

Short Put or Short Call

Equity, Narrow- based Index

Deposit cash or cash equivalents equal to aggregate exercise price or escrow agreement for a short put. For a short call, deposit underlying security or escrow receipt. Sale proceeds not released until deposit is made.

100% of option proceeds plus 20% of underlying security/index value less out-of-the-money amount, if any, to a minimum of option proceeds plus 10% of underlying security/index value for calls; 10% of the put exercise price for puts.

For each short option, 100% of option market value plus 20% of underlying security/index value less out-of-the-money amount, if any, to a minimum of option mkt. value plus 10% of underlying security/index value for calls; 10% of the put exercise price for puts.

Position

Option Type

Cash Account Initial Requirement

Margin Account Initial Requirement

Margin Account Maintenance Requirement

Short Put and Short Call1

Broad- and Narrow-based Indexes

Deposit appropriate escrow receipts. See short put/short call requirement.

For the same underlying index with the same index multiplier, short put or short call requirement, whichever is greater, plus the option proceeds of the other side.

For the same underlying index with the same index multiplier, short put or short call requirement, whichever is greater, plus the current option market value of the other side.

Short Put and Short Call

Equity

Deposit appropriate escrow receipts. See short put/short call requirement.

For the same underlying security, short put or short call requirement, whichever is greater, plus the option proceeds of the other side.

For the same underlying security, short put or short call requirement, whichever is greater, plus the current option market value of the other side.

Short Call and Long Underlying (not permitted for index, CAPs or interest rate options)

Equity

Pay for underlying position in full.

No requirement on short call. 50% requirement on long stock position.

No requirement on short call. 25% requirement on long stock. Long underlying position must be valued at the lower of current market value or call aggregate exercise price.

(1) Option guarantee letters are not currently acceptable in lieu of a margin deposit for short interest rate option calls. In many instances, institutional entities are not barred from trading these instruments on a margin basis, provided that the options serve to offset the risk exposure of other interest rate investments.





This website is only a brief summary and should only serve as a supplement to careful review of relevant CBOE rules and federal securities laws dealing with margin requirements. The requirements explained here are based on publication date rules and regulations, and therefore, subject to change. This website should be used as a reference document and is not intended to be an all-encompassing restatement of Federal Reserve Board and Exchange margin rules. Brokerage firms may require customers to post higher margins than the minimum margins specified on this website. For more information on margin requirements for options, please contact CBOE's Department of Member Firm Regulation at (312) 786-7718. In addition please see the discussion of margins in the Characteristics and Risks of Standardized Options publication, Chapter 12 of the rules of the CBOE, and also the 41-page CBOE Margin Manual.

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