Margin floor
Definition · Level 4 · Naked options
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The lowest the formula allows for a naked option, even when it is far out of the money: premium + 10% of the underlying (calls) or of the strike (puts).
Example
Sell the 80 put for 0.30 with the stock at 100: the floor, 8.30, sets the requirement: $830.
Rules and market figures change: check the current ones before relying on this.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Naked margin: how brokers size it”: The typical formula brokers use to size a naked option, and why they can ask for more.
Related terms
- House requirementA broker’s own margin rule, stricter than the regulatory minimum.
- OTM amountHow far a strike is from the stock price when the option is out of the money (OTM).
- Strategy-based marginA rule-based requirement set by formula for each position type.
- Blow-upLosing all or most of an account in a single event, usually from oversized short-vol or leveraged positions.
- Borrow cost in option pricesIn a hard-to-borrow stock, short sellers pay the fee through the options: puts trade expensive and calls cheap compared with parity at normal…
- Calendar Spread – CreditBuy the near-term option and sell the longer-term one at the same strike.