Options Buying Power

How is buying power calculated for options trading?

Options buying power is calculated separately from standard buying power. Options are non-marginable securities and must be paid for in full at the time of purchase. Additionally, stricter requirements apply for using Instant Buying Power from pending ACH deposits to trade options. Depending on your deposit history, only a portion of your recent deposit, or none at all, may be available for trading options.

How is options buying power calculated in a cash account?

In a cash account, your options buying power is the same as your overall buying power. Since there’s no margin involved, your ability to trade options is based entirely on your available cash.

How is options buying power calculated in a margin account?

In a margin account, your options buying power is calculated as the lesser of your SMA or Margin Excess, the amount of equity available beyond your margin requirements. Because of this, options buying power often closely reflects your margin excess, though it may differ slightly depending on your SMA balance and built-in buffers for risk management purposes. If your margin account has no cash but still has margin excess, you can still use that margin to open options positions by leveraging other assets in your portfolio.

What are the buying power requirements for cash-secured short puts?

When selling cash-secured puts, you must have the full amount of the potential deliverable in options buying power to open the position. This ensures you have sufficient funds to purchase the underlying shares if the option is assigned. The required buying power for opening cash-secured short puts is: Strike Price × 100 (shares per contract) × Number of Contracts. For example, If you want to open 2 short put contracts with a strike price of $50, the required options buying power would be: $50 × 100 × 2 = $10,000.

What are the buying power requirements for Level 3 options strategies?

To trade spread strategies in a margin account, you must maintain a minimum start-of-day margin equity of $2,000. This is calculated as your Net Account Value (NAV) minus any pending ACH deposits or non-marginable positions, such as options. This is a regulatory minimum and applies regardless of how small the trade may be. For credit spreads, the buying power requirement is calculated as: spread width (the difference between strike prices) × 100 × number of contracts. For strategies with two sides of unequal width, such as iron condors or iron butterflies, the requirement is based on the wider of the two sides. For debit spreads, the requirement is the premium paid to open the position.

Examples

If you're two $90, $95 call spread, your total requirement per spread would be $1000. The calculation would be 5 (spread width) x 100 x 2 (spread quantity). If you're trading two $90/$95 call spreads, the total buying power requirement is $1,000, calculated as: 5 (spread width) × 100 × 2 (contracts). If you're trading one iron condor with a $5-wide call spread and a $10-wide put spread, the buying power requirement is $1,000, calculated as: 10 (wider spread width) × 100 × 1 (contract).

What are the buying power requirements for Level 4 options strategies?

For naked options, the buying power requirements are stricter. You'll need a minimum NAV of $10,000 just to be eligible to place a naked call or put, and the system will then use the highest result from the following formulas to determine your margin requirement:

• (Underlying Stock Price × Margin Requirement % - Out of the Money Amount) × 100
• For Calls: (Current Market Value of the underlying plus premium) × 100

For Puts: (Strike Price × 15% + Net Premium) × 100

• A fixed amount of $250 per contract.

These formulas are designed to ensure there's adequate coverage for risk exposure, particularly with uncovered or "naked" positions, which can have unlimited downside.

Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.