Options Trading Tutorial

Buying a call option account requirements?

Do brokerage firms require you to maintain a particular amount of assets (cash+stocks) in your account for buying call options? Meaning if a stock is priced at $400 and you are planning on buying 10 call contract priced at $5.00, totaling to $5,000, and you only have $5,500 in your account; does your brokerage firm require you to deposit more money into the account as collateral or not?!

Public Comments

1. You should be able to conduct the transaction that you have specified with no problem at all. The times that you might run into problems is if you wanted to sell that call option naked. In that case you would have to have collateral in your account to protect the brokerage firm. But in the case mentioned there is no risk to the brokerage firm so you are free to do so.
2. Options are usually traded for cash settlement (T+1). Therefore they have to be paid for the next day (or even before you deal). Unless you have a margin account.
3. no, they don't. It is because your max risk is the premium you have already paid. no, you just need $5000 plus commission, no need collateral.
4. The government (SEC) does not require any additional funds in your account beyond what is required to purchase the options. Each brokerage, however, is allowed to set higher requirements, so you may find some brokerages would not allow you to buy any options unless you have a certain minimum account size. Also, with the exception of some LEAPS (long-term options) option contracts are not marginable. To buy $5,000 worth of options you would likely need $5,000 in cash, not $5,000 in total assets (including other options and stock).