When I buy or sell an option contract, am I subject to futures style mark to market rules...i.e if the position moves against me, will the broker issue a margin call to put up additional collateral, or worse automatically sell some other holdings in my account?

I am talking of Interactive Brokers specifically.

I thought the answer was 'No', but then i read this in this option guide:

Margin Requirements

As I mentioned earlier, short straddles, since they involve selling naked options, are suitable for traders with some experience. Your broker will take care of that. Since selling naked options involves getting an approval, your broker will need to review your trading history as well as the amount of buying power in your account.

As always with selling options, a margin account is required. Short straddle margin requirement equals to the greater of requirements on short puts or short calls. That amounts to 20% of the stock price plus the amount the option is in the money.

Let’s calculate margin requirements using the PBR example, assuming the straddle was opened for 20 contracts total (single option contract equals 100 shares of stock). Since calls were slightly in the money, they would be used to calculate the margin. ($15.53 * 0.20 + 0.53) * 10 * 100 = $3636.

To earn a profit of up to $3500 we had to provide a collateral of $3636.

As long as the position is open, it is marked to market every day.

  • All short options have a margin requirement unless they are covered. If not covered, that margin requirement changes as the price of the underlying changes. – Bob Baerker Sep 18 '18 at 3:39

If I sell a covered call, on stock I own 100%, there is no risk of a margin call. The stock goes to zero, I'm still not ask to send in more money. But, if bought on margin, margin rules apply.

A naked put would require you to be able to buy the stock if put to you. As the price of the stock drops, you still need to be able to buy it at the put strike price.

Mark to market is just an expression describing how your positions are considered each day.

  • So mark to market is not just for futures? – Victor123 Nov 14 '14 at 1:25
  • Right. In effect, any margin situation is marked to market to note whether a margin call is needed. – JTP - Apologise to Monica Nov 14 '14 at 2:30

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