Margin and Trading Limitations

Margin requirements vary markedly from one brokerage firm to another. Also, wide variations exist among brokers as to the types of allowed options trades, particularly in retirement accounts.

The most restrictive brokers require margin that corresponds to the worst-case scenario for every option in your account, regardless of other options in the account that ensure a hedged position. The most liberal brokers only require margin on short option positions to the extent that they are not appropriately hedged.

An easy way to get an overall sense of a broker’s policy on margin requirements is to inquire whether they require margin on butterfly trades. (Chapter 23, “Butterfly Spreads,” discusses this type of trade.) ...

Get Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.