Futures For You by Carley Garner
WHAT DO I DO IF I GET A MARGIN CALL? (PART 2)
Last time, we discussed the mechanics of a margin call, about how they are triggered and how position delta can be used to manipulate margin. This time, weíll focus on the margin process and a hands-on example of making adjustments to margin and risk.
Margining short options: Before we can consider margin adjustment, we need to understand the basics of short option margining. What many people donít realize is selling an option immediately increases the cash in a trading account in the amount of premium collected minus transaction costs.
Although the short option itself is a liability, the cash collected enhances the equity that the margin is measured against. Accordingly, each dollar collected in premium increases the marginable funds. That said, option selling isnít a risk-free printing press for money; short option premium acts as a cushion toward losses at expiration but also leaves the trader open for theoretically unlimited risk of loss.