This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Options margin is the collateral your broker requires to open and maintain an options position. The margin requirement depends on the option type, the strategy, the underlying, and the broker's own risk model. Two brokers can quote different margin requirements for the same position, and both can be right within their own framework.
The mechanics are worth understanding for anyone trading options on margin — not just for compliance, but because the margin requirement directly affects how much leverage you have, how many contracts you can sell, and how much room you have to add to a position.
Cash-secured puts and covered calls
Two strategies that don't involve borrowing but do have explicit margin rules:
- Cash-secured put. You sell a put option and set aside enough cash to buy the stock at the strike price if assigned. The margin requirement is the strike × 100 (per contract), held in cash. No leverage, no margin call risk beyond the cash you've already committed.
- Covered call. You own 100 shares of the underlying stock and sell a call option against them. The margin requirement is the cost of the 100 shares. The call premium is yours to keep regardless of the outcome.
These are the simplest cases. Most brokerages will let you run them in a standard margin account without special approval.
Naked options and the underlying margin
Selling an option without holding the underlying or enough cash to cover assignment is a "naked" position. The margin requirement is much higher because the broker is exposed to unlimited downside (on naked calls) or significant downside (on naked puts).
A typical broker formula for a naked short call:
- 20% of the underlying stock price minus the out-of-the-money amount, plus the option premium
- Minimum: 10% of the underlying stock price plus the option premium
For a stock at $100 with a naked call at the $105 strike sold for $2.00:
- 20% × $100 = $20
- Less out-of-the-money: $5 (the $5 difference between stock price and strike)
- Plus premium: $2
- Margin: $17 per share, or $1,700 per contract
For a stock at $50 with a naked call at the $55 strike sold for $1.00:
- 20% × $50 = $10
- Less out-of-the-money: $5
- Plus premium: $1
- Margin: $6 per share, or $600 per contract
- Minimum check: 10% × $50 + $1 = $6 — equal, so $600 is the requirement
The formula gives the broker a buffer that scales with the stock price and the option's moneyness.
Portfolio margin
Some brokers offer portfolio margin, which calculates margin requirements based on the overall risk of the portfolio rather than the position-by-position rules above. The methodology is more sophisticated and often results in lower margin requirements for hedged positions.
For a hedged position (e.g., a short straddle hedged with a long option), portfolio margin can require 30-50% less capital than the Reg-T equivalent. For an unhedged naked option, the requirement can be similar or higher.
Portfolio margin is typically available only to accounts with significant equity (often $100,000+ in the US) and to traders who demonstrate experience. Most retail traders use Reg-T margin, not portfolio margin.
Regional differences
The rules above are US (FINRA Reg-T). Other jurisdictions have different frameworks:
- Europe (ESMA). ESMA introduced stricter rules in 2018 for retail clients. Naked short options are generally not allowed for retail accounts. Margin requirements are typically 100% of the option premium plus additional collateral for riskier positions. The framework is more conservative than the US Reg-T approach for retail traders.
- UK (FCA). Similar to ESMA, with additional rules on retail leverage.
- Australia (ASIC). Stricter rules for retail since 2021, including a ban on certain leveraged product types. Margin requirements are more conservative than the US for retail accounts.
For European retail traders, the practical effect is that you can buy options, sell cash-secured puts, and sell covered calls. Selling naked options usually requires a professional account or an exception from the broker.
What triggers a margin call
A margin call happens when the account equity drops below the maintenance margin requirement. The broker will demand additional funds or the closure of positions.
For options, the triggers are:
- The underlying moves against your position
- Implied volatility rises (increasing the value of options you've sold, which means more margin required)
- Time passes (the position is closer to expiry, and some brokers recalculate margin as expiry approaches)
The timeline for a margin call is usually 1-3 business days. Some brokers offer more time; some offer less. The exact terms are in the margin agreement you sign when opening the account.
How to evaluate
When comparing brokers for options margin, ask:
- What's the formula for naked short options? (Reg-T is the US default, but brokers can apply higher requirements.)
- Is portfolio margin available? (Lower margin for hedged positions, but higher account minimums.)
- What's the maintenance margin percentage? (Often 25-30% of the position value for Reg-T accounts.)
- What's the time to meet a margin call? (1-3 days is typical, but varies.)
- Are there additional requirements for low-priced or high-volatility underlyings?
Common mistakes
Three patterns:
- Assuming stock margin and options margin work the same way. Stock margin is 50% (US Reg-T) for most positions. Options margin is calculated per-strategy and can be 10-100% depending on the position.
- Selling naked options without checking the margin first. The margin requirement for a naked call can be 3-5× the premium you collected. If you don't check, you can find yourself under-margined on day one.
- Holding a short option through earnings. Implied volatility rises into earnings, increasing the margin requirement. A position that was comfortable a week ago can become a margin call on the morning of the announcement.
FAQ
Can I trade options on margin in an IRA?
In most cases, no. IRAs are cash accounts in the US. Covered calls and cash-secured puts are allowed; naked options are not. Some brokers offer "limited margin" in IRAs for specific strategies, but the standard is cash.
What happens if I don't meet a margin call?
The broker can close some or all of your positions to bring the account back to the required equity. They don't need your permission. The position closures are at market prices, and you bear any loss.
How much leverage do I get with options margin?
A cash-secured put uses cash as collateral, so no leverage. A naked call can give you 5-10× leverage on the option premium. A well-hedged spread can give you 2-3× leverage with a defined risk.
Can I change brokers to get better options margin terms?
Yes, but the difference between brokers is usually small for standard Reg-T accounts. The bigger differences are for portfolio margin, professional accounts, and exotic products.
Related resources
- Best Brokers For Options Trading
- Brokerage Fees → Options Trading Fees
- Brokerage Fees → Margin Rates Comparison
Where to start
If you're setting up an options trading account, the practical first step is to compare the margin rules at the major brokers for the specific strategy you want to run. See our broker table for the current list of options-friendly platforms.