Overview of Margin Requirements for Options
Note: Margin requirements referred to herein mean margin requirements set-forth in Cboe Rule 10.3 and are minimums that brokerage firms must require in customer accounts.Brokerage firms can impose higher requirements. FINRA 4210 also sets-forth comparable margin requirements for options.
Strategy-based margin rules have been applied to option customers' positions for more than four decades. (Please note that, as an alternative to the strategy-based margin methodology, a portfolio margining methodology may be applied to certain customer accounts.)
In the stock market, "margin" refers to buying stock 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 (less than nine (9) months until expiration) 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 on a short option (i.e., 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, including butterfly spreads and box spreads (collectively referred to as "spreads"), may now be established and carried in a cash account if the spread is composed of European style, cash settled index options that all expire at the same time.. For basic two-legged spreads 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. With respect to Margin Account Maintenance Requirement, use current option market value in place of option proceeds referenced in the initial requirement.
|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||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.||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, if any, 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 Same as initial requirement. Note that in any event, the option has no value for margin purposes when time remaining to expiration reaches 9 months.|
|Short Put or Short Call||Broad-based Index||Short put. Deposit cash or cash equivalents equal to aggregate exercise price or escrow agreement. Short call. Deposit broad based index option escrow receipt. 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.||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||Short put. Deposit cash or cash equivalents equal to aggregate exercise price or escrow agreement. 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.||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 market value plus 10% of underlying security/index value for calls; 10% of the put exercise price for puts.|
|Short Put and Short Call||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 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.|
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 Derivative Strategy at Cboe - (312) 786-7718. In addition please see the discussion of margins in the Characteristics and Risks of Standardized Options publication.