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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.

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  • 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
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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.

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  • 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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I had the same question myself. I entered a covered call on the IB platform about 2 weeks later I got a letter stating that my margin requirements were going up to 100 percent. I thought at first it would not matter as the short call is covered by the stock. Well I got up the next morning and was shocked! had little excess liquidity left and this was because IB was not allowing me to cover the short call with gains on the stock! What a scam, they were trying to force my hand in the market so that they could profit from me getting a forced liquidation, just as well I noticed what was going on could have been disaster. Watch out for brokers, they are NOT your friend, they are in the business of forcing their clients into margin calls in order to profit. When I rang IB and explained they basically laughed at me and had all the excuses in the world to state why my covered call is in fact "uncovered". This is especially bad with illiquid stocks, trying to get out of a short option position because the broker raised margins is a really costly endeavour.

About marked to market be careful I was looking at some puts that were 1 dollar in the money (stock was about 2 bucks) but the ask price of the put was 4 times the price of the stock. I asked how could this be and also the last trading price was also at the ask. If it is true that your excess liquidity is marked to market then all that must happen is for the last trading price of a put to be made several times higher than its intrinsic value and you will get a margin call, its like a fictitious debt being created out of thin air, marked to market rules are a scam and so are stockbrokers. Legalised extortion.

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  • Something doesn't add up because if you own the stock, a short call is 100% covered (see JTP's answer). For your covered call, what was the stock and did you own it outright or had you purchased the stock on margin? Your put example doesn't make a lot of sense without details (stock and strike price, premium, expiration, position). – Bob Baerker Jun 12 '20 at 12:15
  • @Dennis, This doesnt actually answer the question, ideally you should have some references (web or other) for what you say, but at the moment, you are telling a story, which I'm not clear if it answers the question or not. – Marcus D Jun 12 '20 at 16:53
  • Owned stock outright and had plenty free cash. – Dennis Jun 13 '20 at 8:37
  • Imagine a situation where you had a portfolio of covered calls and all of a sudden the broker raised margins on all of these stocks to 100 percent, it means when the stock gains in value non of those gains add to excess liquidity due to 100 percent margin requirement. Therefore the gains on the stock will not offset the short calls in this situation. No this should not be allowed to happen but its a big wake up call for me because I am now aware just how brokers make their money, forcing peoples hands by raising margin requirements, this creates losers. – Dennis Jun 13 '20 at 8:56
  • According to Proverbs 22:7 (NIV), “The rich rule over the poor, and the borrower is slave to the lender.” – Dennis Jun 13 '20 at 8:59

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