Understanding Portfolio Margin Requirements for Options Trading

Portfolio margins can be as complex as the portfolio strategies themselves. It's best to always check with your broker or to use the technical support in your trading platform. This is due to sell side credit calls, or puts, that make margin calculations harder. The cost of the spread is paid by cash in the account.

Generally, options spreads are based on the volatility of the underlying market just like futures margin requirements are. This volatility can change therefore the required margin amount will change as well.

The Risks

If you are not careful, you can get into margin account problems very quickly should the market turn quickly. Keep a close eye on your margin level, compared to equity in the account. Most of the time, portfolio margin for options strategies are determined by the exchanges. For example, a butterfly spread will have a set margin requirement. Keep in mind, that only credit spreads have margin requirements. Otherwise, they are cash settled in the account, one day after transaction day.

Margin requirements can change with fluctuating market prices making these options spreads difficult to set a standard fixed margin requirement attached to it.