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If I try enter a limit order for an options spread I am denied being able to make this trade due to not having a margin account. Why? I'm not borrowing any money to make the trade, it's all in cash. My understanding is that spreads have a limited risk (what I spend on the options) and reward, so why would I have to maintain any margin on them? For example, if I buy an ATM call and sell (write) an OTM call my equity in the former should always be greater than my exposure to the short call, so how could there ever be a margin call?

Even weirder still would be the case where if by some quirk in the market I would happen to get filled on a net credit limit order for a box spread. In this case it is arbitrage that is basically fixing a profit for me at the time of the trade, which my understand is would be risk free. Again, why would I need a margin account for this?

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    While I believe this question is fair, I would warn anyone attempting to trade in any particular form, to fully understand that form before doing so. If you have attempted a trade and were unable to do so for reasons outside of your understanding, it may be a sign that you are in over your head. – Grade 'Eh' Bacon Sep 22 '16 at 18:21
  • What country are you in, because where I am from, in Australia, there is no requirement to have a margin account for such trades. You just need to have enough funds in your trading account to allow for any margin requirements needed on the trades. – Victor Sep 23 '16 at 4:04
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The spread is two trades, one of which opens up some risk one of which limits/cancels the risk. There is nothing stopping you from selling part of the spread opening the door to the risk. You're required to have a margin account to open risky positions, even if the specific spread trade you're attempting to open has a risk limiting/cancelling counterpart.

  • Ah, I see... so rather than prohibiting you from selling off one of the legs and leaving the other on the table (which might be harder to do) they just don't let you enter the trade to begin with. – Michael Sep 22 '16 at 18:15
  • Also, I guess it would complicate things if any of the legs were for some reason closed outside my control - for instance, if an assignment was made. – Michael Sep 22 '16 at 18:47
  • @Michael, exactly. While many brokers have spread trades built in to their software, a spread is still multiple trades – quid Sep 22 '16 at 18:50
  • By what I know an option account is always a margin account. – Armando Sep 22 '16 at 21:20
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    @JoeTaxpayer right, but not properly closing out the position if you don't want to buy the shares is still a problem (to avoid) even if you only buy the $50 with no spread involved, and that doesn't require a margin account. – Michael Sep 23 '16 at 18:56
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Assignment risk. In your example, if someone exercises OTM call, your account could be assigned. In that case, if you do nothing, you could lose more money than there is in the account. The broker won't do it for you because there is more than one way to handle the assignment. For example, you might choose to exercise the long call, or buy a different call and exercise that. Selling the long call may be enough to satisfy any resulting margin call.

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