what is option margin
option margin is the cash or securities an investor must deposit in their account as collateral before writing or selling options margin requirements are established by the federal reserve board in regulation t and vary based on the type of option basics of option marginoption margin requirements are very complex and differ quite a bit from stocks or futures margin requirements in the case of stocks and futures a margin is used as leverage to increase buying power whereas an option margin is used as collateral to secure a position minimum margin requirements for various types of underlying securities are established by finra and the options exchanges brokers may have very different margin requirements since they can add to the minimum requirements set by regulators some option strategies such as covered calls and covered puts have no margin requirement since the underlying stock is used as collateral traders must request options trading authorization when opening a new account often brokers will classify options trading clearance levels depending on the type of strategies employed buying options is typically a level i clearance since it doesn t require margin but selling naked puts may require level ii clearances and a margin account level iii and iv accounts often have lower margin requirements option margin requirements can have a significant impact on the profitability of a trade since it ties up capital complex strategies such as strangles and straddles may involve computing multiple margin requirements traders should determine the margin requirements for a trade before entering into it and make sure that they can meet those requirements if the market turns against them 