Buying Options On Margin
Note: Trading on a margin is considered a risky investment strategy. If you have lost money due to an advisor or broker who has unsuitably recommended margin trading, you should speak to an experienced investment fraud lawyer to discuss your legal options.
buying options on margin
The biggest risk of margin trading is that you may lose more money than you originally invested. When investors trading on a margin and they experience losses, they may be required to pay back more money than they originally borrowed (Margin Call).
A margin call is when your broker asks you to add more money to your account because the value of your securities has fallen. If you cannot afford to pay the margin call, your broker may sell some or all of your securities in order to raise the money.
Another risk is that you may be forced to sell your securities at a time when you do not want to. If the value of your securities falls and the broker calls for a margin payment, you may be forced to sell your securities in order to come up with the money.
Important note: Options transactions are intended for sophisticated investors and are complex, carry a high degree of risk, and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options prior to applying for an account. Also, there are specific risks associated with uncovered options writing that expose the investor to potentially significant loss. Please read the Special Statement for Uncovered Options Writers before you trade.
Trading on margin involves specific risks, including the possible loss of more money than you have deposited. A decline in the value of securities that are purchased on margin may require you to provide additional funds to your trading account. In addition, E*TRADE Securities can force the sale of any securities in your account without prior notice if your equity falls below required levels, and you are not entitled to an extension of time in the event of a margin call. When trading on margin, an investor borrows a portion of the funds he/she uses to buy stocks to try to take advantage of opportunities in the market. He/she pays interest on the funds borrowed until the loan is repaid. For each trade made in a margin account, we use all available cash and sweep funds first and then charge the customer the current margin interest rate on the balance of the funds required to fill the order. The minimum equity requirement for a margin account is $2,000. Please read more information regarding the risks of trading on margin.
E*TRADE charges $0 commission for online US-listed stock, ETF, mutual fund, and options trades. Exclusions may apply and E*TRADE reserves the right to charge variable commission rates. The standard options contract fee is $0.65 per contract (or $0.50 per contract for customers who execute at least 30 stock, ETF, and options trades per quarter). The retail online $0 commission does not apply to Over-the-Counter (OTC) securities transactions, foreign stock transactions, large block transactions requiring special handling, futues, or fixed income investments. Service charges apply for trades placed through a broker ($25). Stock plan account transactions are subject to a separate commission schedule. All fees and expenses as described in a fund's prospectus still apply. Additional regulatory and exchange fees may apply. For more information about pricing, visit etrade.com/pricing.
Consolidation is not right for everyone, so you should carefully consider your options. Before deciding whether to retain assets in a retirement plan account through a former employer, roll them over to a qualified retirement plan account through a new employer (if one is available and rollovers are permitted), or roll them over to an IRA, an investor should consider all his or her options and the various factors including, but not limited to, the differences in investment options, fees and expenses, services, the exceptions to the early withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, the tax treatment of employer stock (if held in the qualified retirement plan account), and the availability of plan loans (i.e., loans are not permitted from IRAs, and the availability of loans from a qualified retirement plan will depend on the terms of the plan). For additional information, view the FINRA Website.
Securities products offered by E*TRADE Securities LLC (ETS), Member SIPC or Morgan Stanley Smith Barney LLC (MSSB), Member SIPC. Investment advisory services offered by E*TRADE Capital Management, LLC (ETCM) or MSSB. Commodity futures and options on futures products and services offered by E*TRADE Futures LLC, Member NFA. Stock plan administration solutions and services offered by E*TRADE Financial Corporate Services, Inc. Banking products and services are provided by Morgan Stanley Private Bank, National Association, Member FDIC. All entities are separate but affiliated subsidiaries of Morgan Stanley.
Note: Margin requirements referred to herein mean margin requirements set-forth in Cboe Rule 10.3 and are minimums that brokerage firms must require in customer accounts.Brokerage firms can impose higher requirements. FINRA 4210 also sets-forth comparable margin requirements for options.
Strategy-based margin rules have been applied to option customers' positions for more than four decades. (Please note that, as an alternative to the strategy-based margin methodology, a portfolio margining methodology may be applied to certain customer accounts.)
In the stock market, "margin" refers to buying stock on credit. A margin customer pays for half (50%) of the cost of buying stock (the margin) and the brokerage firm lends the customer the balance. Margin customers are required to keep securities on deposit with their brokerage firms as collateral for their borrowings. Buyers of options can now buy equity options and equity index options on margin, provided the option has more than nine (9) months until expiration. The initial(maintenance) margin requirement is 75% of the cost(market value) of a listed, long term equity or equity index put or call option. One who takes a "long" position in a non-marginable (less than nine (9) months until expiration) put option or call option is required to pay the premium amount in full.
In the options market, "margin" also means the cash or securities required to be deposited by an option writer with his brokerage firm as collateral for the writer's obligation on a short option (i.e., to buy or sell the underlying interest, or in the case of cash-settled options to pay the cash settlement amount), if assigned an exercise. Minimum margin requirements currently are imposed by the options markets and other self-regulatory organizations, and higher margin requirements may be imposed either generally or for certain positions by the various brokerage firms.
Uncovered writers may have to meet calls for substantial additional margin in the event of adverse market movements. Even if a writer has enough equity in his account to avoid a margin call, increased margin requirements on his option positions will make that equity unavailable for other purposes.
If a holder of a physical delivery call option exercises and wishes to purchase the underlying interest on credit, the holder may be required to deposit margin with the holder's brokerage firm. Holders of physical delivery options on a foreign currency should be aware that, at the date of this booklet, foreign currency has no value for margin purposes except to the extent that credit has been extended on the same foreign currency.
Certain limited risk spreads, including butterfly spreads and box spreads (collectively referred to as "spreads"), may now be established and carried in a cash account if the spread is composed of European style, cash settled index options that all expire at the same time.. For basic two-legged spreads The requirement for debit (or long) spreads is to pay for the net debit in full. For credit (or short) spreads, cash or cash equivalents equal to the maximum risk (less the net credit received for selling the spread) must be deposited and held in the account.
Margin requirements for option writers are complex and are not the same for every type of underlying interest. Margin requirements are subject to change, and may vary from brokerage firm to brokerage firm. However, margin requirements can have an important effect on an option writer's risks and opportunities. Persons considering writing options (whether alone or as part of multiple position strategies, such as spreads or straddles) should determine the applicable margin requirements from their brokerage firms and be sure that they have sufficient liquid assets to meet those requirements in the event of adverse market movements.
As per the new peak margin rule, maximum intraday leverage is capped and only 80% of credit from selling your holdings will be available for new trades. Check this bulletin for details on intraday leverages offered. Read more.
Attention investors: 1) Stock brokers can accept securities as margins from clients only by way of pledge in the depository system w.e.f September 01, 2020. 2) Update your e-mail and phone number with your stock broker / depository participant and receive OTP directly from depository on your e-mail and/or mobile number to create pledge. 3) Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month.
CME Clearing considers a vast array of inputs, including historical data, annual or seasonal patterns, recent or anticipated events and changes in market dynamics when calibrating our margin model. This approach is grounded in data-driven calibration over different time periods, and is supplemented by expert analysis of current market conditions. CME Clearing employs a tailored approach for each asset classes we clear, which reflects the price movements, trading practices and patterns specific to these products. 041b061a72