Equity option exchanges define position limits for designated equity options classes. These limits define position quantity limitations in terms of the equivalent number of underlying shares (described below) which cannot be exceeded at any time on either the bullish or bearish side of the market. Account positions in excess of defined position limits may be subject to trade restriction or liquidation at any time without prior notification.
Position limits are defined on regulatory websites and may change periodically. Some contracts also have near-term limit requirements (near-term position limits are applied to the side of the market for those contracts that are in the closest expiring month issued). Traders are responsible for monitoring their positions as well as the defined limit quantities to ensure compliance. The following information defines how position limits are calculated;
The following examples, using the 25,000 option contract limit, illustrate the operation of position limits:
IB will send notifications to customers regarding the option position limits at the following times:
Position limits are set on the long and short side of the market separately (and not netted out).
Traders can use an underlying stock position as a "hedge" if they are over the limit on the long or short side (index options are reviewed on a case by case basis for purposes of determining which securities constitute a hedge).
Position information is aggregated across related accounts and accounts under common control.
IB considers related accounts to be any account in which an individual may be viewed as having influence over trading decisions. This includes, but is not limited to, aggregating an advisor sub-account with the advisor's account (and accounts under common control), joint accounts with individual accounts for the joint parties and organization accounts (where an individual is listed as an officer or trader) with other accounts for that individual.
Regulations permit clients to exceed a position limit if the positions under common control are hedged positions as specified by the relevant exchange. In general the hedges permitted by the US regulators that are recognized in the IB system include outright stock position hedges, conversions, reverse conversions and box spreads. Currently collar and reverse collar strategies are not supported hedges in the IB system. For more detail about the permissible hedge exemptions refer to the rules of the self regulatory organization for the relevant product.
OCC posts position limits defined by the option exchanges. They can be found here.
http://www.optionsclearing.com/webapps/position-limits
Effective December 1, 2009, FINRA has implemented increased customer margin requirements for leveraged Exchange Traded Funds (ETFs) and uncovered options underlying leveraged ETFs (see NASD Rule 2520 and NYSE Rule 431).
Leveraged ETFs are a subset of ETFs which are intended to generate performance in multiples of that of the underlying index or benchmark (e.g. 200%, 300% or greater). In addition certain of these ETFs seek to a generate performance which is not only a multiple of but also the inverse of the underlying index or benchmark (e.g., a short ETF). These leveraged funds typically include among their holdings derivative instruments such as options, futures or swaps which are intended to provide the desired leverage and/or inverse performance.
The regulatory objective with respect to this margin increase is to recognize the leverage embedded in these instruments and establish a margin rate which is commensurate with that level of leverage (not to exceed 100% of the ETF value). Thus, for example, whereas the base strategy-based maintenance margin requirement for a non-leveraged long ETF will remain at 25% and a short non-leveraged ETF at 30%, examples of the maintenance margin change for leveraged ETFs are as follows:
1. Long an ETF having a 200% leverage factor: 50% (= 2 x 25%)
2. Short an ETF having a 300% leverage factor: 90% (= 3 x 30%)
A similar scaling in margin will also take effect for options. Thus, for example, whereas the base strategy-based maintenance margin requirement for a non-leveraged listed and uncovered broad based ETF index option will remain at 100% of the option premium plus 15% of the ETF market value less any out-of-the-money amount (to a minimum of 10% of ETF market value in the case of calls and 10% of the option strike price in the case of puts), that 15% rate will increase by the leverage factor of the ETF.
In the case of portfolio margin accounts, the effect will be similar, with the scan ranges by which the leveraged ETF positions will be stress tested increasing by the ETF leverage factor.
Clients maintaining positions in these ETFs should be aware that IB's standard liquidation policies will remain in effect upon the implementation of this new margin requirement and thereafter and any account which reports a margin deficit is subject to immediate liquidation.
A list of the leveraged ETF products impacted by this change are outlined below
| SYMBOL | MULTIPLIER | DESCRIPTION |
| QLD | 200% | PROSHARES ULTRA QQQ |
| QID | -200% | PROSHARES ULTRASHORT QQQ |
| SSO | 200% | PROSHARES ULTRA S&P500 |
| SH | -100% | PROSHARES SHORT S&P500 |
| SDS | -200% | PROSHARES ULTRASHORT S&P500 |
| PSQ | -100% | PROSHARES SHORT QQQ |
| MVV | 200% | PROSHARES ULTRA MIDCAP400 |
| MYY | -100% | PROSHARES SHORT MIDCAP 400 |
| MZZ | -200% | PROSHARES ULTRASHORT MIDCAP400 |
| DDM | 200% | PROSHARES ULTRA DOW30 |
| DOG | -100% | PROSHARES SHORT DOW30 |
| DXD | -200% | PROSHARES ULTRASHORT DOW30 |
| UWM | 200% | PROSHARES ULTRA RUSSELL2000 |
| RWM | -100% | PROSHARES SHORT RUSSELL2000 |
| TWM | -200% | PROSHARES ULTRASHORT RUSSELL20 |
| SAA | 200% | PROSHARES ULTRA SMALLCAP600 |
| SBB | -100% | PROSHARES SHORT SMALLCAP600 |
| SDD | -200% | PROSHARES ULTRASHORT SMALLCAP6 |
| UVG | 200% | PROSHARES ULTRA RUSSELL1000 VA |
| SJF | -200% | PROSHARES ULTRASHORT RUSSELL10 |
| UKF | 200% | PROSHARES ULTRA RUSSELL1000 GR |
| SFK | -200% | PROSHARES ULTRASHORT RUSSELL10 |
| UVU | 200% | PROSHARES ULTRA RUSSELL MIDCAP |
| SJL | -200% | PROSHARES ULTRASHORT RUSSELL M |
| UKW | 200% | PROSHARES ULTRA RUSSELL MIDCAP |
| SDK | -200% | PROSHARES ULTRASHORT RUSSELL M |
| UVT | 200% | PROSHARES ULTRA RUSSELL2000 VA |
| SJH | -200% | PROSHARES ULTRASHORT RUSSELL20 |
| UKK | 200% | PROSHARES ULTRA RUSSELL2000 GR |
| SKK | -200% | PROSHARES ULTRASHORT RUSSELL20 |
| UYM | 200% | PROSHARES ULTRA BASIC MATERIAL |
| SMN | -200% | PROSHARES ULTRASHORT BASIC MAT |
| UGE | 200% | PROSHARES ULTRA CONSUMER GOODS |
| SZK | -200% | PROSHARES ULTRASHORT CONSUMER |
| UCC | 200% | PROSHARES ULTRA CONSUMER SERVI |
| SCC | -200% | PROSHARES ULTRASHORT CONSUMER |
| URE | 200% | PROSHARES ULTRA REAL ESTATE |
| SRS | -200% | PROSHARES ULTRASHORT REAL ESTA |
| ROM | 200% | PROSHARES ULTRA TECHNOLOGY |
| REW | -200% | PROSHARES ULTRASHORT TECHNOLOG |
| UPW | 200% | PROSHARES ULTRA UTILITIES |
| SDP | -200% | PROSHARES ULTRASHORT UTILITIES |
| UYG | 200% | PROSHARES ULTRA FINANCIALS |
| SKF | -200% | PROSHARES ULTRASHORT FINANCIAL |
| RXL | 200% | PROSHARES ULTRA HEALTH CARE |
| RXD | -200% | PROSHARES ULTRASHORT HEALTHCAR |
| UXI | 200% | PROSHARES ULTRA INDUSTRIALS |
| SIJ | -200% | PROSHARES ULTRASHORT INDUSTRIA |
| DIG | 200% | PROSHARES ULTRA OIL & GAS |
| DUG | -200% | PROSHARES ULTRASHORT OIL & GAS |
| USD | 200% | PROSHARES ULTRA SEMICONDUCTORS |
| SSG | -200% | PROSHARES ULTRASHORT SEMICONDU |
| EFZ | -100% | PROSHARES SHORT MSCI EAFE |
| EFU | -200% | PROSHARES ULTRASHORT MSCI EAFE |
| FXP | -200% | PROSHARES ULTRASHORT FTSE/XINH |
| DXSP | -100% | DB X-TRACKERS DJ ES 50 SHORT |
| EUM | -100% | PROSHARES SHORT MSCI EMERGING |
| EEV | -200% | PROSHARES ULTRASHORT MSCI EMER |
| EWV | -200% | PROSHARES ULTRASHORT MSCI JAPA |
| RMM | 200% | RYDEX 2X S&P MIDCAP 400 ETFLCAP |
| RMS | -200% | RYDEX INVERSE 2X S&P MIDCAP |
| RSU | 200% | RYDEX 2X S&P 500 ETF |
| RSW | -200% | RYDEX INVERSE 2X S&P 500 ETF |
| RRY | 200% | RYDEX 2X RUSSELL 2000 ETFALLCAP |
| RRZ | -200% | RYDEX INVERSE 2X RUSS 2000 |
| LTL | 200% | PROSHARES ULTRA TELECOMMUNICAT |
| TLL | -200% | PROSHARES ULTRASHORT TELECOMMU |
| PST | -200% | PROSHARES ULTRASHORT LEHMAN 7- |
| TBT | -200% | PROSHARES ULTRASHORT LEHMAN 20 |
| SEF | -100% | PROSHARES SHORT FINANCIALS |
| BGU | 300% | LARGE CAP BULL 3X SHARES |
| BGZ | -300% | LARGE CAP BEAR 3X SHARES |
| TNA | 300% | SMALL CAP BULL 3X SHARES |
| TZA | -300% | SMALL CAP BEAR 3X SHARES |
| RHM | 200% | RYDEX 2X HEALTH CARE |
| RHO | -200% | RYDEX INV 2X HEALTH CARE |
| RFL | 200% | RYDEX 2X FINANCIAL |
| RFN | -200% | RYDEX INV 2X FINANCIAL |
| RTG | 200% | RYDEX 2X TECHNOLOGY |
| RTW | -200% | RYDEX INV 2X TECHNOLOGY |
| REC | -200% | RYDEX INV 2X S&P ENERGY |
| REA | 200% | RYDEX 2X ENERGY |
| DDG | -100% | PROSHARES SHORT OIL & GAS |
| ERX | 300% | ENERGY BULL 3X SHARES |
| UMM | 300% | MACROSHARES MAJ MET HOU UP |
| ERY | -300% | ENERGY BEAR 3X SHARES |
| TBF | -100% | PROSHARES SHORT 20+ TREASURY |
| DXSN | -100% | DB X-TRACKERS SHORTDAX ETF |
| RTR | 250% | REVENUESHARES ADR FUND |
| X4S | -100% | DBXT CAC 40 SHORT |
| EUO | -200% | PROSHARES ULTRASHORT EURO |
| ULE | 200% | PROSHARES ULTRA EURO |
| ULE | 200% | PROSHARES ULTRA EURO |
| EUO | -200% | PROSHARES ULTRASHORT EURO |
| YCL | 200% | PROSHARES ULTRA YEN |
| YCS | -200% | PROSHARES ULTRASHORT YEN |
| XUKS | -100% | DB X-TRACKERS FTSE 100 SHORT ETF |
| XUKS | -100% | DB X-TRACKERS FTSE 100 SHORT ETF |
| XSPS | -100% | DB X-TRACKERS S&P 500 SHORT |
| DXSR | -100% | DB X-TR II TRX EUR 5Y SH TR |
| XSPS | -100% | DB X-TRACKERS S&P 500 SHORT |
| DXSR | -100% | DB X-TR II TRX EUR 5Y SH TR |
| XSPD | -100% | DB X-TRACKERS S&P 500 SHORT |
| DXST | -100% | DB X-TR II TRX CRS 5Y SH TR |
| UGL | 200% | PROSHARES ULTRA GOLD |
| GLL | -200% | PROSHARES ULTRASHORT GOLD |
| AGQ | 200% | PROSHARES ULTRA SILVER |
| ZSL | -200% | PROSHARES ULTRASHORT SILVER |
| DZK | 300% | DIREXION DEVELOP MKT BULL 3X |
| DPK | -300% | DIREXION DEVELOP MKT BEAR 3X |
| EDC | 300% | DIREXION EMERG MKT BULL 3X |
| EDZ | -300% | DIREXION EMERG MKT BEAR 3X |
| TYH | 300% | DIREXION TECHNOLOGY BULL 3X |
| TYP | -300% | DIREXION TECHNOLOGY BEAR 3X |
| MWJ | 300% | DIREXION MID CAP BULL 3X |
| FAS | 300% | DIREXION DAILY FIN BULL 3X |
| SCO | -200% | PROSHRE U/S DJ-AIG CRUDE OIL |
| UCO | 200% | PROSHRE ULT DJ-AIG CRUDE OIL |
| UCD | 200% | PROSHRE ULT DJ-AIG COMMODITY |
| CMD | -200% | PROSHRE U/S DJ-AIG COMMODITY |
| DES2 | -200% | ETFX DAX 2X SHORT FUND |
| DTO | -200% | POWERSHARES DB OIL 2X SHORT |
| DGP | 200% | DB GOLD DOUBLE LONG ETN |
| DZZ | -200% | DB GOLD DOUBLE SHORT ETN |
| BDD | 200% | POWERSHARES DB METALS 2X |
| BOS | -100% | POWERSHARES DB METALS SHORT |
| BOM | -200% | POWERSHARES DB MTLS 2X SHORT |
| SZO | -100% | POWERSHARES DB CRUDE SHORT |
| DEE | -200% | DB COMMODITY DOUBLE SHORT |
| DDP | -100% | PWRSHS DB COMMODITY SHORT |
| DYY | 200% | DB COMMODITY DOUBLE LONG ETN |
| DAG | 200% | DB AGRICULTURE DOUBLE LONG |
| AGA | -200% | DB AGRI DOUBLE SHORT ETN |
| ADZ | -100% | DB AGRICULTURE SHORT ETN |
| DGZ | -100% | DB GOLD SHORT ETN |
| PTM | -100% | E-TRACS UBS LONG PLATIN ETN |
| PTD | -100% | E-TRACS UBS SHORT PLATIN ETN |
| SHC | -100% | LYXOR SHORT CAC 40 |
| SHA | -100% | LYXOR ETF SHORT AEX |
| DGU | 200% | DB GOLD DOUBLE LONG ETN |
| DGJ | -200% | DB GOLD DOUBLE SHORT ETN |
| DAA | 200% | DB AGRICULTURE DOUBLE LONG |
| DAD | -200% | DB AGRI DOUBLE SHORT ETN |
| DOE | -200% | POWERSHARES DB OIL 2X SHORT |
| SAGR | -100% | ETFS SHORT AGRICUL DJ-AIGCI |
| SALU | -100% | ETFS SHORT ALUMINIUM |
| SCOC | -100% | ETFS SHORT COCOA |
| SWEA | -100% | ETFS SHORT WHEAT |
| SCFE | -100% | ETFS SHORT COFFEE |
| SCTO | -100% | ETFS SHORT COTTON |
| SSYO | -100% | ETFS SHORT SOYBEAN OIL |
| SCOR | -100% | ETFS SHORT CORN |
| SGAS | -100% | ETFS SHORT GASOLINE |
| SCOP | -100% | ETFS SHORT COPPER |
| SBUL | -100% | ETFS SHORT GOLD |
| SLHO | -100% | ETFS SHORT LEAN HOGS |
| SLCT | -100% | ETFS SHORT LIVE CATTLE |
| SOIL | -100% | ETFS SHORT CRUDE OIL |
| SHEA | -100% | ETFS SHORT HEATING OIL |
| SNIK | -100% | ETFS SHORT NICKEL |
| SSOB | -100% | ETFS SHORT SOYBEANS |
| SSIL | -100% | ETFS SHORT SILVER |
| SNGA | -100% | ETFS SHORT NATURAL GAS |
| SPLA | -100% | ETFS SHORT PLATINUM |
| SLEA | -100% | ETFS SHORT LEAD |
| STIM | -100% | ETFS SHORT TIN |
| SSUG | -100% | ETFS SHORT SUGAR |
| SHE | -100% | LYXOR SHORT EUROPE |
| DXS8 | -100% | DB X-TRACKERS DJ STOXX 600 B |
| DXS9 | -100% | DB X-TRACKERS DJ STOXX 600 H |
| DX2A | -100% | DB X-TRACKERS DJ STOXX 600 O |
| DX2B | -100% | DB X-TRACKERS DJ STOXX 600 T |
| DX2C | -100% | DB X-TRACKERS 600 TELECOM SH |
| DX2K | -100% | DB X-TRACKERS FTSE 100 SHORT ETF |
| 9GA7 | -100% | ETFS SHORT CRUDE OIL |
| TYD | 300% | DIREXION DLY 10-Y TR BULL 3X |
| TMF | 300% | DIREXION DLY 30-Y TR BULL 3X |
| TYO | -300% | DIREXION DLY 10-Y TR BEAR 3X |
| TMV | -300% | DIREXION DLY 30-Y TR BEAR 3X |
| 4RTQ | -100% | ETFS SHORT COCOA |
| 9GA3 | -100% | ETFS SHORT COFFEE |
| 9GA5 | -100% | ETFS SHORT CORN |
| 9GA6 | -100% | ETFS SHORT COTTON |
| 4RTG | -100% | ETFS SHORT SOYBEAN OIL |
| 4RTH | -100% | ETFS SHORT SOYBEANS |
| 4RTK | -100% | ETFS SHORT WHEAT |
| 4RTJ | -100% | ETFS SHORT SUGAR |
| 9GAZ | -100% | ETFS SHORT PETROLEUM DJ-AIGC |
| EFO | 200% | PROSHARES ULTRA MSCI EAFE |
| EET | 200% | PROSHARES ULT MSCI EMER MKTS |
| XPP | 200% | PROSHARES ULT FTSE/XIN CH 25 |
| EZJ | 200% | PROSHARES ULTRA MSCI JAPAN |
| 4RTD | -100% | ETFS SHORT NATURAL GAS |
| BZQ | -200% | PROSHARES ULTRASHORT MSCI BR |
| EPV | -200% | PROSHARES ULTRASHORT MSCI EU |
| SMK | -200% | PROSHARES ULTRASHORT MSCI ME |
| JPX | -200% | PROSHARES ULTRASHORT MSCI PA |
| MWN | -300% | DIREXION DLY MID CAP BEAR 3X |
| UPRO | 300% | PROSHARES ULTRAPRO S&P 500 |
| SPXU | -300% | PROSH ULTRAPRO SHORT S&P 500 |
| UWC | 200% | PROSHARES ULTRA RUSSELL 3000 |
| TWQ | -200% | PROSHARES ULTRASHORT RUSSELL |
| FAZ | -300% | DIREXION DAILY FINL BEAR 3X |
| DRV | -300% | DIREXION DAILY REAL EST BEAR |
| DRN | 300% | DIREXION DAILY REAL EST-BULL |
| DMM | -300% | MACROSHARES MAJ MET HOU DOWN |
| SALL | -100% | ETFS SHORT ALL COMM DJ-AIGCI |
| SNRG | -100% | ETFS SHORT ENERGY DJ-AIGCI |
| SNEY | -100% | ETFS SHORT EX-ENERGY DJ-AIGC |
| SGRA | -100% | ETFS SHORT GRAINS DJ-AIGCI |
| SIMT | -100% | ETFS SHORT INDUSTRIAL METALS |
| SLST | -100% | ETFS SHORT LIVESTOCK DJ-AIGC |
| SPET | -100% | ETFS SHORT PETROLEUM DJ-AIGC |
| SPMT | -100% | ETFS SHORT PRECIOUS MTLS |
| SSFT | -100% | ETFS SHORT SOFTS DJ-AIGCI |
| SZIC | -100% | ETFS SHORT ZINC |
| DEL2 | 200% | ETFX DAX 2X LONG FUND |
| DL2P | 200% | ETFX DAX 2X LONG FUND |
| SEU2 | -200% | ETFX DJ EURO ST 50 DBL SH 2X |
| SE2P | -200% | ETFX DJ EURO ST 50 DBL SH 2X |
| LEU2 | 200% | ETFX DJ EURO STOXX 50 LEV 2X |
| DS2P | -200% | ETFX DAX 2X SHORT FUND |
| LE2P | 200% | ETFX DJ EURO STOXX 50 LEV 2X |
| LUK2 | 200% | ETFX FTSE 100 LEVERAGED 2X |
| SUK2 | -200% | ETFX FTSE 100 SUP SHRT ST 2X |
| DES2 | -200% | ETFX DAX 2X SHORT FUND |
| XC4S | -100% | DBXT CAC 40 SHORT |
| XSKS | -100% | DB X-TRACKERS 600 TELECOM SH |
| XSPS | -100% | DB X-TRACKERS S&P 500 SHORT |
| XSDX | -100% | DB X-TRACKERS SHORTDAX ETF |
| XS8S | -100% | DB X-TRACKERS DJ STOXX 600 T |
| XSSX | -100% | DB X-TRACKERS DJ ES 50 SHORT |
| XS7S | -100% | DB X-TRACKERS DJ STOXX 600 B |
| XSDS | -100% | DB X-TRACKERS DJ STOXX 600 H |
| XSES | -100% | DB X-TRACKERS DJ STOXX 600 O |
| DEL2 | 200% | ETFX DAX 2X LONG FUND |
| DNO | -100% | UNITED STATES SHORT OIL FUND |
| EZC | -200% | EASYETF CAC40 DOUBLE SHORT |
How to create option spread strategies using OptionTrader
The Options Clearing Corporation (OCC), the central clearinghouse for all US exchange traded securities option, operates a call center to serve the educational needs of individual investors and retail securities brokers. The resource will address the following questions and issues related to OCC cleared options products:
- Options Industry Council information regarding seminars, video and educational materials;
- Basic options-related questions such as definition of terms and product information;
- Responses to strategic and operational questions including specific trade positions and strategies.
The call center can be reached by dialing 1-800-OPTIONS. The hours of operation are Monday through Thursday from 8 a.m. to 5 p.m. (CST) and Friday from 8 a.m. to 4 p.m. (CST). Hours for the monthly expiration Friday will be extended to 5 p.m. (CST).
In order for the software utilized by IB to recognize a position as a Butterfly, it must match the definition of a Butterfly exactly. These are the 3 different types of Butterfly spreads recognized by IB, and the margin calculation on each:
Long Butterfly:
Two short options of the same series (class, multiplier, strike price, expiration) offset by one long option of the same type (put or call) with a higher strike price, and one long option of the same type with a lower strike price. All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.
There is no margin requirement on this position. The long option cost is subtracted from cash and the short option proceeds are applied to cash.
Short Butterfly Put:
Two long put options of the same series offset by one short put option with a higher strike price and one short put option with a lower strike price. All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.
The margin requirement for this position is (Aggregate put option highest exercise price - aggregate put option second highest exercise price). Long put cost is subtracted from cash and short put proceeds are applied to cash.
Short Butterfly Call:
Two long call options of the same series offset by one short call option with a higher strike price and one short call option with a lower strike price. All component options must have the same expiration, same underlying, and intervals between exercise prices must be equal.
The margin requirement for this position is (Aggregate call option second lowest exercise price - aggregate call option lowest exercise price). Long option cost is subtracted from cash and short option proceeds are applied to cash.
*Please note that Interactive Brokers utilizes option margin optimization software to try to create the minimum margin requirement. However, due to the system requirements required to determine the optimal solution, we cannot always guarantee the optimal combination in all cases. Other option positions in the account could cause the software to create a strategy you didn't originally intend, and therefore would be subject to a different margin equation.
If an iron condor strategy exists in the account, then the margin requirement on that strategy will be the margin on one of the spreads in that iron condor. If the margin requirements on each individual spread is different, then IB will use the requirement that is greater.
To determine what the actual margin will be, calculate the margin requirement for each individual side of the condor:
For the call spread side, the margin requirement = (Maximum (aggregate long call strike - aggregate short call strike, 0)). The long call cost is subtracted from cash and short call proceeds are applied to cash.
For the put spread side, the margin requirement = (Maximum (aggregate short put strike - aggregate long put strike, 0)). The long option cost is subtracted from cash and short option proceeds are applied to cash.
Whichever of these formulas results in the higher requirement, that is the requirement that will be used.
*Please note that Interactive Brokers utilizes option margin optimization software to try to create the minimum margin requirement. However, due to the system requirements required to determine the optimal solution, we cannot always guarantee the optimal combination in all cases. It is possible that given the option positions in the account, the iron condor you are trying to create will not be recognized as such.
There are many different formulas used to calculate the margin requirement on options. Which formula is used will depend on the option type or strategy determined by the system. There are a significant number of detailed formulas that are applied to various strategies. To find this information go to the IB home page at www.interactivebrokers.com. Go to the Trading menu and click on Margin. From the Margin Requirements page, click on the Options tab. There is a table on this page which will list all possible strategies, and the various formulas used to calculate margin on each.
The information above applies to equity options and index options. Options on futures employ an entirely different method known as SPAN margining. For information on SPAN margining, conduct a search on this page for “SPAN” or “Futures options margin”.
There are two scenarios which could occur if a long option is taken to expiration. If the option is out-of-the-money at expiration and you do not choose to exercise it, the option will expire worthless, and your losses will consist of the premium that was paid to acquire the option. If the option is in-the-money at expiration by 0.01 or more, it will be automatically exercised on your behalf (unless you previously chose to lapse the option) by the Options Clearing Corporation (OCC). The OCC processes monthly expiration options on the third Saturday of the month, or the day after Friday expiration. The resulting long or short position will be put into the account, effective on the Friday trade date. If the account has sufficient margin to satisfy the requirement on the resulting position, it will then be up to the account holder to decide what they want to do with the position. If the resulting position causes a margin deficit, the account will be subject to liquidation at a time which is defined by the holdings within the account. Please be aware that any positions could be liquidated as a result of the account being in margin violation—the liquidation is not confined to only the shares that resulted from the option position. For example, if the account holds currency, futures, future options positions or and non-USD product, the account may begin to liquidate to meet the margin deficit as soon as a corresponding market opens.
Account holders should refer to the Characteristics and Risks of Standardized Options disclosure document which is provided by IB to every option eligible customer at the point of application and which clearly spells out the risks of assignment. This document is also available online at OCC's web site.
Account holders have the ability to exercise equity options they hold long in their account.
From Trader Workstation, go to the Trade menu and select Option Exercise.
The Option Exercise window will appear and the Current Long Option Positions box will populate with those options held long in the account. To exercise one of them, left-click on the option desired so that it is highlighted. In the bottom left corner of the Option Exercise window, click the Exercise button.

A window will appear allowing traders to adjust the number of contracts to be exercised. This window will also warn traders that are submitting an exercise request for positions that are out of the money. To exercise out of the money options, traders must check the box that says Allow exercising out of money options.

Once this is done the option will move into the Outstanding Exercises box until the clearinghouse processes the request. Once the option is moved to the Outstanding Excercises box, the action/request is irreversible.
IB offers Traditional, Roth and SEP IRAs any of which may be designated as a 'Cash' or 'Margin' type. The following article outlines the trading permissions provided under each type as well as restrictions which account holders should familiarize themselves with.
CASH TYPE PERMISSIONS
- Long stock, bond, mutual fund
- Long call and put options
- Short calls if covered by underlying stock (which is then restricted)
- Short puts if strike price is fully covered by cash (which is then restricted)
- Option spreads where exercise style is European and long leg expires simultaneously or after short leg
- Long or short futures contracts
Restrictions:
- Must have sufficient (unrestricted) cash available to support all outstanding orders
- Cash proceeds from sales not available for withdrawal or trading until settlement (generally 3 business days for stock, 2 for Forex and 1 for options)
- No short stock
- No negative or debit cash balance (subject to immediate position liquidation in an amount sufficient to restore cash to non-negative balance)
- Not allowed to hold a cash balance or position denominated in a currency different from the Base Currency of the account.
- If the exercise or assignment of an option results in the delivery of either a long stock position for which the account does not have sufficient cash to purchase (e.g., call exercise) or any short stock position (e.g. put exercise) the account will be subject to liquidation.
MARGIN TYPE ACCOUNT
- Long stock, bond, mutual fund
- Long call and put options
- Short calls if covered by underlying stock (which is then restricted)
- Short puts if strike price is fully covered by cash (which is then restricted)
- Option spreads where long leg expires simultaneously or after short leg (no exercise style restriction)
- Long or short futures contracts
- Long balance in non-Base Currency
Restrictions:
- Reg T margin rules enforced (including Pattern day Trading rules)
- Cash proceeds from sales not available for withdrawal until settlement (generally 3 business days for stock, 2 for Forex and 1 for options). Unsettled funds may be used for trading
- Cash proceeds from unsettled sales are available for trading as long as the subsequent purchase order does not settle prior to the sale order
- No short stock
- No negative or debit cash balance (subject to immediate position liquidation in an amount sufficient to restore cash to non-negative balance)
- If purchasing a security or trading a product denominated in a currency different from the Base Currency of the account, a currency conversion must first be executed
- If the exercise or assignment of an option results in the delivery of either a long stock position for which the account does not have sufficient cash to purchase (e.g., call exercise) or any short stock position (e.g. put exercise) the account will be subject to liquidation
- Not eligible for Portfolio Margining
- Not allowed for customers of IB Canada
See KB280 or click here for instructions on upgrading an account from Cash to Margin type.