Options and Other Strategies in Margin Accounts
Options strategies interact with margin in ways that reward candidates who can classify risk. Long options with more than nine months to expiration may have loan value; short options generally require margin because the obligation is open-ended. Covered positions (covered calls, covered puts) receive more favorable treatment than naked shorts, which require substantial margin and are often restricted to approved accounts. Spreads are treated according to their maximum risk: a defined-risk spread may require margin equal to the spread's width, while an undefined-risk position requires a percentage-based requirement. Traps: assuming all short options are treated alike; forgetting that a covered call requires owning the underlying; and confusing the requirement for a debit spread with that of a credit spread.
Key concepts: strategy-based margin (requirements set by the maximum potential loss), portfolio margin (a risk-based alternative for qualifying accounts, which can reduce requirements but demands sophisticated modeling), and the interaction of options with the underlying's margin. Also remember that options positions can affect the maintenance requirement of the whole account, and that a short option assigned early creates a stock position with its own margin consequences. Questions often ask whether a specific strategy is permitted in a margin account and what the requirement is; the answer usually follows maximum loss.
Worked rule of thumb: For a defined-risk spread, margin = width of the spread x multiplier, less any credit received, subject to house rules. For a naked short call, the requirement is typically a percentage of the underlying plus a premium component; if you cannot compute it precisely, identify the strategy as undefined-risk and expect a high requirement.