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Michael C. Thomsett is a widely published options author. His "Getting Started in Options" (Wiley, 9th edition) has sold over 300,000 copies. He also is author of "Options Trading for the Conservative Investor" and "The Options Trading Body of Knowledge" (both FT... More
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Michael C. Thomsett, author
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Getting Started in Stock Investing and Trading
  • Margin Definitions - Not The Same For Options As For Stocks 0 comments
    Apr 28, 2013 11:49 AM

    Most stock traders know all about margin. You can buy stock and pay 50%, borrowing the other 50% on margin. This is great leverage as long as the price rises, but a much bigger risk if the stock price falls.

    But when it comes to options trading, "margin" has a completely different meaning.

    Unlike the stock margin, meaning leveraged trading, in the options world margin is a collateral requirements. Depending on the kind of trade, you are required to post collateral requires by the margin rules. The most extreme example is that of an uncovered short option. The margin requirement here is for 100% of the strike value. For example, if you sell, a 50 strike option, you have to provide $5,000 collateral in your margin account.

    Using the same word for two vastly different kinds of requirements is very confusing. To find out how much margin collateral you need for specific trades, download the free and very valuable CBOE document, the CBOE Margin Manual

    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at to learn more. As a new member, if you buy a one-year subscription, you also get a free copy of one of my books, including this new one just released.

    I also offer a weekly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. All it requires is your e-mail address. Join at Weekly Newsletter I look forward to having you as a subscriber.

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