The margin formula for a short option with no offsetting position, typically a percentage of underlying value less the out-of-the-money amount.
The standard US formula charges the greater of two calculations, then adds the premium received. Brokers apply their own house-margin-requirement on top, and index options use different percentages from single stocks.
The number moves. As the option goes further in-the-money, the out-of-the-money offset shrinks and the requirement climbs, so the capital demand rises exactly when the position is losing.
Example: XYZ at $50, short one $55 call. Requirement ≈ 20% × $5,000 − $500 + premium ≈ $560. XYZ rallies to $57: now the option is in the money, the offset is gone, and the requirement is roughly 20% × $5,700 + premium ≈ $1,400. You are down money and using more than twice the capital.
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.Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
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