What are the Maintenance Requirements for Equity Spreads?
Equity Spreads
Debit Spreads - The buyer of a debit spread must pay 100% of the purchase price of the spread. Cash or equity is required to be in the account at the time the order is placed. Regulation T and maintenance requirements are also 100%.
Debit Spread Scenario
Client buys 5 of the October 65/60 put spread in XYZ security for $1.75
Example
In this scenario, the margin requirement would be the total cash spent purchasing the debit spread, $875.
Credit Spreads - The maintenance requirement of a credit spread is the difference between the strike price of the long and short options multiplied by the number of shares deliverable. Cash generated from the sale will be applied to this requirement and the difference will be due upon execution of the trade.
Credit Spread Scenario
Client sells 5 of the October 70/65 put spread in XYZ security for $3.25
Example
The margin requirement for this spread is $2500. The client will collect $1875 from the sale of the spread ((5.75-2.00) *500)) and will be responsible for having the difference between the margin requirement and premium collected, $625, when entering the trade.
Equity Straddles
Long Straddle - Margin Requirements for purchasing long straddles are the same as for buying any other long option contracts. The buyer of a long straddle must pay 100% of the purchase price. Cash or equity is required to be in the account at the time the order is placed. Regulation T and maintenance requirements are also 100%
Straddle Scenario
Client buys 5 October 65 Straddles in XYZ Security for $4.25
Example
In this scenario, the margin requirement would be the total cash spent purchasing the straddle, $2125.
Short Straddle
The margin requirement is the greater of the uncovered requirement for the calls or puts, plus the value of the premium received on the other, non-holding , side of the straddle, and a minimum account value of $5000.
Straddle Scenario
Client sells 5 October 65 Straddles in XYZ Security for $4.25
Example
In this scenario, the total margin requirement for the short straddle is $8650. This is derived by taking the margin requirement for the naked calls (the greater requirement) and adding to it the current value of the puts. Cash generated from the sale will be applied to this requirement and the difference will be due upon execution of the trade.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Spreads, Straddles, and other multiple-leg option strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades.