# Margin

To calculate the margin requirement you calculate the "Initial Margin" and the "Minimum Requirement" you then compare the two and select the largest.

Lets looks at three examples:

• Short undefined risk : Naked Put
• Short defined risk: Put Spread
• Long: Long Put

## Undefined Risk (naked) - Short

### Short Put

Initial margin requirement:

• 100% of option proceeds, plus 20% of underlying security value less out-of-the-money amount, if any
• minimum requirement is option proceeds plus 10% of the put’s aggregate exercise price (number of contracts x exercise price x \$100)
• proceeds received from sale of puts(s) may be applied to the initial margin requirement
• after position is established, ongoing maintenance margin requirement applies, and an increase (or decrease) in the margin required is possible

Position
Short 1 Sep 200 puts(s) at \$1.20
Underlying stock at \$209.00
Put is out-of-the-money

Initial Margin
Margin requirement: \$3,400.00
Proceeds from sale of short put(s): \$120.00
Margin call (SMA debit): \$3,280.00

## Defined Risk - Short

For defined risk positions, you basically take the widh of the spread and substract the premium received. The margin is actually the maximum loss of the possition.

Initial margin requirement:

• the amount by which the long put aggregate strike price is below the short put aggregate strike price (aggregate strike price = number of contracts x strike price x \$100)
• long put(s) must be paid for in full
• proceeds received from sale of short put(s) may be applied to the initial margin requirement
• the short put(s) may expire before the long put(s) and not affect margin requirement

Position:
Long 1 Sep 120 put(s) at \$0.80
Short 1 Sep 125 put(s) at \$1.24

Initial Margin
Margin requirement: \$580.00
Proceeds from sale of short put(s): \$124.00
Margin call (SMA debit): \$456.00

## Long Positions

For all long positions the margin is equal to the premium paid.

The detail is as follow

Initial margin requirement:

• no margin required on short put(s)
• long put(s) must be paid for in full
• proceeds received from sale of short put(s) may be applied to the cost of the long put(s)
• the short put(s) may expire before the long put(s) and not affect margin requirement

Position
Long 1 Sep 100 puts(s) at \$2.30
Short 1 Sep 95 puts(s) at \$1.30

Initial Margin

Margin requirement for long put(s): \$230.00
Proceeds from sale of short put(s): \$130.00
Margin call (SMA debit): \$100.00

Visit CBOE web site for a complete margin calculator