The Complete Guide to Option Strategies – Book [PDF]

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The Complete Guide to Option Strategies Book

Spread Margin As a general rule, the standard margin requirement (subject to a minimum), portfolio margin, or SPAN is used to determine the margin requirement for an uncovered option position—but what if the position is a spread? The formula used to determine a margin requirement depends on whether it is an uncovered option or spread. To lower your margin requirement, you can trade an option spread instead of an uncovered option.

The margin on a vertical credit spread is calculated as the lesser of the short option margin or the difference between the strike prices less the premium collected. For example, ignoring the premium, if XYZ is trading at $100 and you sell one XYZ February 100/110 vertical call spread, the initial margin requirement is $1,000 instead of the $2,000 required for an uncovered February 100 call option. Likewise, if you sell one XYZ February 90/100 vertical put spread, the initial margin requirement is $1,000 instead of the $2,000 required for an uncovered February 100 put option.