The standard US retail margin framework for options: fixed formulas per strategy rather than a risk model of the whole portfolio.
Under Reg-T, long options must be paid for in full, defined-risk spreads require the maximum loss, and naked short options use a formula — typically 20% of the underlying less the out-of-the-money amount, with a floor.
The framework is simple and blunt. It does not recognise that a hedge in one position offsets risk in another, so a well-hedged portfolio can consume far more capital than its actual risk warrants. That is the problem portfolio-margin exists to solve.
Example: XYZ at $50, short the $45 put. Requirement is max(20% × $5,000 − $500, 10% × $4,500) + premium = max($500, $450) + $130 ≈ $630. The same position under a risk-based model might require closer to $400.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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