Options Margin Question

Please help try to clarify my question while I talk with my broker at the same time. It is concerning margin requirements for an options spread. If I sell a hypothetical 5 point wide option spread for 1 point, and the points are $100, should I be charged $500 collateral to hold the spread or $400? I believe it should be $400, since I'm taking in $100, and my max risk in the trade is only $400. Thoughts? Thanks.

 

see attached document. Example from Optionsxpress trade calculator.

 

That's a great snapshot. Thank you. So it looks like the margin for that GOOG trade would be $885 at Optionsxpress. That's how I would calculate it. Seems like some brokers want to charge the whole $1000 as margin. Much appreciated.

 

Actually, I would value it at $890 margin. Where did they get $885 ($115 net proceeds)?

 

the $885 is the requirement for the 10 pt spread. ($1000)
Minus the "Credit" from the sell ($160).
then the commission deducted from the Credit.
That leaves you with the $885 total required.
But...
I always use the amount required for the 10 pt spread as my guide for the trade. I just traded this today. Did 10 contracts, so I set up my budget for the trade for $10,000 required. I could have squeezed in one more contract with the Credit I received, but I don't.

 

Still don't understand your numbers....but I get the gist. As long as I know that some brokers aren't asking for the whole spread as margin, then I'm good. Thanks.

 

basically, 500 will be set aside, but since you take in 100 the net effect on buying power will be 400.

 

The real reason I want to know is for calculating returns for the trade.

If my hypothetical trade expires worthless, and I get to keep the whole $100, would my return be 25% ($100/$400) or would it be 20% ($100/$500)? It all depends on how much the broker asks for margin.

 

Your buying power is reduced by 400 so it's 25%.

 

Thanks MTE. That's how I felt about the numbers all along.