Writing Options Buying Power

Discussion in 'Options' started by Cre8UrF8, Jan 12, 2006.

  1. In a retail account, if I write an option does it get booked as "short" buying power or "long" buying power?

    If it is booked as short buying power I get "short" debit interest?
  2. If you are short an option, the margin requirement would reduce your option buying power.

  3. I am obviously not too familiar with options. In equities there is "long" and "short" buying power. Is it the same with regards to options?
  4. Well maybe we are not understanding the other person's words. Long options cannot be bought on margin so to buy an option you need 100% of the cash. So an account with $20,000 has $20,000 of option buying power.

    AS for selling options short, there is margin requirements for short puts and calls such as:

    Unsecured Short Puts & Naked Calls (Equity and Index) 25% of the underlying market price + the premium - amount out of the money OR
    10% of the underlying market price (or strike price for O-T-M puts) + the premium, whichever is greater.*

    Cash Secured Short Puts 100% of the exercisable value.
    Short Straddles The greater of the short put or short call requirement, plus the current premium of the leg with the lower requirement.

    Debit Spreads 100% of the debit amount upon initiating the transaction.

    Credit Spreads 100% of the difference between the strike prices multiplied by the number of contracts, credit from the proceeds included.

    Long Butterfly 100% of the debit amount upon initiating the transaction.

    (taken from a broker).

    With most retail brokers, the margin requirements might be $100,000 minimum account to sell options short and the margin for a specific position will reduce your option buying power by that amount.
  5. Forgive a simple question here, but I am new to retail options having traded with an institution formerly.

    If you short a credit spread at IB, for example, do you still earn interest on the margin you have to put up?

    In other words, if I sell a 5 dollar vertical for 4, am I still earning interest on that last dollar?
  6. hopback


    Don't know about IB but with other brokers i've delt with you could earn interst on the cash balance(premium received) less any short market value.