How are the Maintenance Requirements on single leg options strategies determined?
Long Options: The buyer of long options 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%.
Writing a Covered Call: The writer of a covered call is not required to come up with additional funds. The backing for the call is the stock. During the life of the covered call, the underlying security cannot be valued higher, for margin requirement and account equity purposes, than the strike price of the short call.
Writing a Cash Secured Put: The put-writer must maintain a cash balance equal to the total exercise value of the contracts. If the option is assigned, the writer of the put option purchases the security with the cash that has been held to cover the put.
Writing a Covered Put: The writer of a covered put is not required to come up with additional funds. The backing for the put is the short stock. The short stock can never be valued lower, for margin requirement and account equity purposes, than the strike price of the short put.
Uncovered Equity Options
Because writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. The minimum equity for writing uncovered options is $5000 and requires an initial deposit and maintenance of the greatest of the following three formulas:
1. 20% of the underlying stock less the out of the money amount (if any), plus 100% of the current market value of the option
2. Calls: 10% of current market value of the stock PLUS the premium value
Puts: 10% of Exercise Value of the underlying stock PLUS the premium value
3. $50 per contract plus 100 % of the premium
In Scenario 1, the margin requirement would be $9000 as it is the highest requirement of the 3 examples.
In Scenario 2, the margin requirement would be $4350 as it is the highest requirement of the 3 examples.
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 is subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.