Credit spread assignment & margin requirement
- Main Problem: The user is concerned about the buying power required for a bull put spread on Fidelity and the implications of being assigned on the short leg without the ability to purchase the underlying shares.
- Solution: The margin requirement for credit put spreads in nonretirement accounts is determined by the lower of the difference in strike prices or the short option’s requirement as an uncovered position.
- Solution: Users can utilize Fidelity’s margin calculator to determine their margin requirements and balances by following steps provided on their website.
- Solution: The system will hold the needed margin requirement for the trade, which will reduce buying power and available withdrawal amounts, but will not incur interest.
Here’s the full thread
I’m interested in using credit spreads on Fidelity – specifically looking at a bull put spread here. My concern is around how much buying power I actually need and what will happen if I’m assigned on my short leg without being able to afford 100+ shares of the underlying.
While attempting to research this, I’ve seen that “the margin requirement for credit spreads in nonretirement accounts is the lower of the difference in strike prices or the short option’s requirement as an uncovered position”, which sounds to me like I do not need to be able to afford to buy all of the shares – only the calculated risk. Is this correct? What happens to my account if the short leg is assigned (which I understand can happen before expiration)?
These topics can be pretty tricky, so we’re always happy to jump in here and give some clarity.
The margin requirement for credit put spreads in nonretirement accounts is the lower of the following:
-The greater of the two naked requirements on the short put, using 25% or higher or 15%
-The greater of the difference in the strike prices or the difference in the premium
When trading securities using trade type margin, including uncovered options, the system will hold the needed margin requirement for the trade. This amount will be journaled from your core position into your margin credit balance and will not bear interest. This process will also reduce your buying power for future trades, and reduce the amount available to withdraw.
You will be able to determine margin requirements along with other balances associated with securities you own or are considering trading, using our margin calculator. This tool can be accessed by following these simple steps on our website after logging in.
1. Choose “Accounts & Trade” then select “Portfolio”
2. Select the “Balances” tab and click the applicable account on the left
3. Scroll down to click the “Calculator” link
Please keep in mind that there may be additional Rules-Based Requirements (RBRs) based on concentration or other factors that impact what the margin requirement will be. The margin calculator will take RBR into consideration for you.
Margin Trading FAQs: https://www.fidelity.com/trading/faqs-margin
If there is anything we can clarify or if additional questions pop up, please don’t hesitate to ask! We’re always happy to help.
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options (https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document). Supporting documentation for any claims, if applicable, will be furnished upon request. 🟢