Options Buying Power

When trading options, it’s important to understand how buying power works and how it differs from trading stocks. Options are considered non-marginable securities, which means they must be paid for in full at the time of purchase — you can't borrow against your account or use margin to buy them. Because of this, instant buying power is not available for options, even if you’ve just made a deposit.

If you fund your account via ACH, the funds typically take 3–4 business days to clear before they can be used to trade options. If you’re looking for faster access, you might consider linking a debit card or sending a wire transfer, both which typically clear within 1 business day.

I trade in a cash account, what should I be aware of?

In a cash account, your options buying power is generally the same as your overall buying power. Since there’s no margin involved, your ability to trade options is based entirely on your available cash. You’ll need the full amount of the options premium in your account before placing a trade.

Important considerations when using a Margin account.

In a margin account, things work a bit differently. Your options buying power is closely tied to your margin excess — the amount of equity available beyond your margin requirements. While it’s not always a 1:1 match, options buying power typically reflects your margin excess with a slight buffer built in for risk management purposes. If your margin account has no cash but still has margin excess, you can still use that margin to open options positions, since you're essentially leveraging other assets in your portfolio.

Maintenance requirements for Level 3 & 4 strategies.

If you’re trading credit spreads, the buying power requirement is based on the width of the spread, multiplied by 100, and then by the number of spreads. For example, if you're trading a 5-point wide spread, your requirement per spread would be $500. If you’re trading strategies like iron condors or iron butterflies, and the widths of the two sides are different, the system will use the larger of the two widths to calculate the requirement.

To open any spread strategy in a margin account, you must maintain at least a $2,000 Net Account Value (NAV). This is a regulatory minimum and applies regardless of how small the trade may be. For naked options, the requirements are more strict. You’ll need a minimum NAV of $10,000 just to be eligible to place a naked call or put, and the system will then use the highest result from the following formulas to determine your margin requirement:

• (Underlying Stock Price * Margin Requirement % - Out of the Money Amount) * 100

• For Calls: (Current Market Value of the underlying plus premium) * 100

For Puts: (Strike Price * 15% + Net Premium) * 100

• A fixed amount of $250 per contract.

These formulas are designed to ensure there's adequate coverage for risk exposure, particularly with uncovered or “naked” positions, which can have unlimited downside.

Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.