Assignments after closing buys – Option Trading FAQ

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Contents

Can Options Assignment Cause Margin Call?

I’ve had three emails in the past month on people being assigned on positions and receiving margin calls, and generally not knowing what happened. I advise everyone to completely research and become familiar with the exercise/assignment aspect of option trading. If you don’t you can find your entire account blown out over a weekend.

Option assignments occur in two basic varieties. First, on expiration Friday (or Thursday or Wednsday depending on the instrument your trading, but most commonly on Friday). If you have a position that is .01 in the money, or more, you WILL be assigned. For instance, if you have a 100 Call on stock XYZ that expires today, and XYZ closes (AFTER HOURS) at 100.01, you will find that you own, sometime Saturday, 100 shares of XYZ that you paid $100/share for.

Now this option might have only cost you $100 or so. But all of a sudden, due to the inherent multiplier in options, you are now out of pocket $10,000.00. What if you’re account only had $5,000.00 in it? Well, you are going to get both (a) a Regulation T Notice and (b) margin call from your broker. First thing Monday morning, your broker will automatically liquidate the position. What if there is adverse news over the weekend and the opening price is only $80? Well you just lost $2,000.0 — in a $5,000.00 account. In other words, that $100 option just cost you 40% of your entire account. This happens.

What if you had “hedged” the position though, and had a vertical call spread? For instance, you might have bought the $100/$105 spread on XYZ. Well if XYZ closes anywhere above $105 you are ok because BOTH positions will be auto-exercised. This SOMETIMES results in a margin call as well — but don’t worry. Option clear throughout the day on Saturday and your account will frequently show one position and the other not exercised yet. By Sunday morning it will be fixed. By way of example, I had a very large position (for me) (20 contracts) in the LNKD 92.5/95 vertical call before earnings. Well earnings did what they were supposed to and LNKD jumped to 104. Well Saturday morning, all of a sudden, I was SHORT 2000 shares of LNKD and had received roughly $190K in cash into my account. This sends off all kinds of margin alerts. I got an email, a call, and another call. Ignore them, they’re idiots. The 92.5 side simply hadn’t cleared yet. Three hours later the other option cleared, buying the shorts back at 92.5. Then Sunday morning, your account statement will reflect that all trades happened at the same time.

HOWEVER, what if, on that 100/105 spread, XYZ closes at 103 on Friday? Well, guess what, you’ll be assigned on the 100 position, the 105 will expire worthless, and now your back in margin call.

MORAL OF THE STORY:

DON’T EVER LET YOURSELF BE ASSIGNED ON A SPREAD THAT’S NOT FAR IN THE MONEY ON BOTH LEGS.

What if, on Friday, the price of XYZ was at $106 at close? You better have closed the spread, because of after hours trading. The price of XYZ can move after hours — but you can’t get out of the options. So if the market closes at 106, and you say good, both legs will clear and I won’t pay commissions (or pay less commissions) and get a huge tax break, you could be wrong, as in after hours the market might go back to $104.98. Then you’re screwed, only the 100 option gets exercised and you go into margin call. I’m convinced when your near a strike the market makers manipulate the after hours markets to have this happen.

Of course if you have enough cash in your account, you won’t get margin called — you’re risk profile will just be largely out of whack.

And this isn’t to say you can’t have a big benefit from this. My single most profitable trade EVER occurred on a spread that was $.50 above the line, I didn’t close it, and then in after hours the price dropped. So I got assigned long on the lower strike. Well, that weekend there was big news involving the company and the price jumped 15% the next morning. In that case, here’s what happens — I own the 100 (long) /105 (short) vertical. After hours, the price is $104.92. Well that spread was worth $4.85 at close on 20 contracts, or $9,700. Well, Saturday I’m now the proud owner of 2,000 shares bought at $100.00 each, for a net cost of $200,000 — oops. Margin call, broker call, broker email, ect. Well they inform me the trade will immediately close at open on Monday. Well the price jumped, and the position was closed, at $240,000.00. My original investment of $8,500.00, that I didn’t want to close at $9,700.00, netted me $40,000.00, or roughly a 470% return. BUT, what if the price had gone down 20%? Well I would be owing my broker money and have completely blown out my account.

If you have ANY questions on this, please let me know.

Now SITUATION TWO — and you will, sooner or later, encounter this. Let’s say we have that same 100(long)/105 (short) spread on XYZ. Only we own the September spread and today (Friday) XYZ closes at 103. No bigger. UNLESS someone exercises their 100 spread. American style options can be exercised at anytime. Why would this happen with time value? Who knows, most likely someone needed to unwind a position, hedge something, take profits, any number of things realy.

Well if you had a 10 contract position, on Saturday your account is now down $100,000.00 in cash and you won 1,000 shares of XYZ. You will again go into margin call. However, while this is a headache and you will have to deal with your broker, you don’t need to panic because the position is still hedged. You can certainly still lose money — but only up to the 105 line.

What happens? Well your broker will force you to exit the position Monday morning at the open. If you BEG and wheedle, the broker might let you close the position yourself, so you can close at the mid point instead of just a market order. They should let you do this because the position is still hedged, but you are technically in a Reg T violation, so they won’t let you hold it for long. Monday you’ll have to sell your shares and buy back the short calls. This should be, at worst, a break even situation because of the time value left in the short calls. However, markets fluctuate and you might have to sell your stock at something like 104 and by the time you exit the short calls its up to 105 (or you get a bad fill price) so you give back some.

When this happens, take your lumps and move on. I have this happen about once a quarter and my worse loss was 4%. There’s nothing you can do to protect against this. You are hedged, and you won’t blow your account out, but it does suck.

I hope that clears some things. If not, please let us know.

By Christopher B. Welsh

Christopher B. Welsh is a SteadyOptions contributor. He is a licensed investment advisor in the State of Texas and is the president of a small investment firm, Lorintine Capital, LP which is a general partner of two separate private funds. He offers investment advice to his clients, both in the law practice and outside of it. Chris is an active litigator and assists his clients with all aspects of their business, from start-up through closing.

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    What is Options Assignment & How to Avoid It

    If you are learning about options, assignment might seem like a scary topic. In this article, you will learn why it really isn’t. I will break down the entire options assignment process step by step and show you when you might be assigned, how to minimize the risk of being assigned, and what to do if you are assigned.

    Video Breakdown of Options Assignment

    Check out the following video in which I explain everything you need to know about assignment:

    What is Assignment?

    To understand assignment, we must first remember what options allow you to do. So let’s start with a brief recap:

    • A call option gives its buyer the right to buy 100 shares of the underlying at the strike price
    • A put option gives its buyer the right to sell 100 shares of the underlying at the strike price

    In other words, call options allow you to call away shares of the underlying from someone else, whereas a put option allows you to put shares in someone else’s account. Hence the name call and put option.

    The assignment process is the selection of the other party of this transaction. So the person that has to buy from or sell to the option buyer that exercised their option.

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    Note that an option buyer has the right to exercise their option. It is not an obligation and therefore, a buyer of an option can never be assigned. Only option sellers can ever be get assigned since they agree to fulfill this obligation when they sell an option.

    Let’s go through a specific example to clarify this:

    • The underlying security is stock ABC and it is trading at $100.
    • Peter decides to buy 1 put option with a strike price of 95 as a hedge for his long stock position in ABC
    • Kate sells this exact same option at the same time.

    Over the next few weeks, ABC’s price goes down to $90 and Peter decides to exercise his put option. This means that he uses his right to sell 100 shares of ABC for $95 per share. Now Kate is assigned these 100 shares of ABC which means she is obligated to buy them for $95 per share.

    Peter now has 100 fewer shares of ABC in his portfolio, whereas Kate has 100 more.

    This process is analog for a call option with the only difference being that Kate would be short 100 shares and Peter would have 100 additional shares of ABC in his portfolio.

    Hopefully, this example clarifies what assignment is.

    Who Can Be Assigned?

    To answer this question, we must first ask ourselves who exercises their option? To do this, let’s quickly look at the different ways that you can close a long option position:

    1. Sell the option: Selling an option is probably the easiest way to close a long option position. Doing this will have no effect on the option seller.
    2. Let the option expire: If the option is Out of The Money, it would expire worthless and there would be no consequence for the option seller. If, on the other hand, the option is In The Money by more than $0.01, it would typically be automatically exercised. This would start the options assignment process.
    3. Exercise the option early: The last possibility would be to exercise the option before its expiration date. This, however, can only be done if the option is an American-style option. This would, once again, lead to an option assignment.

    So as an option seller, you only have to worry about the last two possibilities in which the buyer’s option is exercised.

    But before you worry too much, here is a quick fact about the distribution of these 3 alternatives:

    Less than 10% of all options are exercised.

    This means 90% of all options are either sold prior to the expiration date or expire worthless. So always remember this statistic before breaking your head over the risk of being assigned.

    It is very easy to avoid the first case of being assigned. To avoid it, just close your short option positions before they expire (ITM). For the second case, however, things aren’t as straight forward.

    Who Risks being Assigned Early?

    Firstly, you have to be trading American-style options. European-style options can only be exercised on their expiration date. But most equity options are American-style anyway. So unless you are trading index options or other kinds of European-style options, this will be the case for you.

    Secondly, you need to be an options seller. Option buyers can’t be assigned.

    These two are necessary conditions for you to be assigned. Everyone who fulfills both of these conditions risks getting assigned early. The size of this risk, however, varies depending on your position. Here are a few things that can dramatically increase your assignment risk:

    • ITM: If your option is ITM, the chance of being assigned is much higher than if it isn’t. From the standpoint of an option buyer, it does not make sense to exercise an option that isn’t ITM because this would lead to a loss. Nevertheless, it is possible. The deeper ITM the option is, the higher the assignment risk becomes.
    • Dividends: Besides that, selling options on securities with upcoming dividends also increases your risk of assignment. More specifically, if the extrinsic value of an ITM call option is less than the amount of the dividend, option buyers can achieve a profit by exercising their option before the ex-dividend date.
    • Extrinsic Value: Otherwise, keep an eye on the extrinsic value of your option. If the option has extrinsic value left, it doesn’t make sense for the option buyer to exercise their option because they would achieve a higher profit if they just sold the option and then bought or sold shares of the underlying asset. Typically, the less time an option has left, the lower its extrinsic value becomes. Implied volatility is another factor that influences extrinsic value.
    • Puts vs Calls: This is more of an interesting side note than actual advice, but put options tend to get exercised more often than call options. This makes sense since put options give their buyer the right to sell the underlying asset and can, therefore, be a very useful hedge for long stock positions.

    How can you Minimize Assignment Risk?

    Since you now know what assignment is, and who risks being assigned, let’s shift our focus on how to minimize the assignment risk. Even though it isn’t possible to completely remove the risk of being assigned, there are things that you can do to dramatically decrease the chances of being assigned.

    The first thing would be to avoid selling options on securities with upcoming dividend payments. Before putting on a position, simply check if the underlying security has any upcoming dividend payments. If so, look for a different trade.

    If you ever are in the position that you are short an option and the ex-dividend of the underlying security is right around the corner, compare the size of the dividend to the extrinsic value of your option. If the extrinsic value is less than the dividend amount, you really should consider closing the position. Otherwise, the chances of being assigned are high. This is especially bad since being short during a dividend payment of a security will force you to pay the dividend.

    Besides avoiding dividends, you should also close your option positions early. The less time an option has left, the lower its extrinsic value becomes and the more it makes sense for option buyers to exercise their options. Therefore, it is good practice to close your (ITM) short option positions at least one week before the expiration date.

    The deeper an option is ITM, the higher the chances of assignment become. So the just-mentioned rule is even more important for deep ITM options.

    If you don’t want to indefinitely close your position, it is also possible to roll it out to a later expiration cycle. This will give you more time and add extrinsic value to your position.

    FAQs about Assignment

    Last but not least, I want to answer some frequently asked questions about options exercise and assignment.

    1. What happens if your account does not have enough buying power to cover the assigned position?

    This is a common worry for beginning options traders. But don’t worry, if you don’t have enough capital to cover the new position, you will receive a margin call and usually, your broker will just automatically close the assigned shares immediately. This might lead to a minor assignment fee, but otherwise, it won’t significantly affect your account. Tatsyworks, for example, charges an assignment fee of only $5.

    2. How does assignment affect your P&L?

    When an option is exercised, the option holder gains the difference between the strike price and the price of the underlying asset. If the option is ITM, this is exactly the intrinsic value of the option. This means that the option holder loses the extrinsic value when he exercises his/her option. That’s also why it doesn’t make sense to exercise options with a lot of extrinsic value left.

    This means that as soon as the option is exercised, it is only the intrinsic value that is relevant for the payoff. This is the same payoff as the option at its expiration date.

    So as an options seller, your P&L isn’t negatively affected by an assignment. Either it stays the same or it becomes slightly better due to the extrinsic value being ignored.

    As an example, if your option is ITM by $1, you will lose up to $100 per option or $1 per share that you are assigned. But this does not account for the extrinsic value that falls away with the exercise of the option. So this would be the same P&L as at expiration. Depending on how much premium you collected when selling the option, this might still be a profit or a minor loss.

    With that being said, as soon as you are assigned, you will have some carrying risk. If you don’t or can’t close the position immediately, you will be exposed to the ongoing price fluctuations of that security.
    Sometimes, you might not be able to close the new position immediately because of trading halts, or because the market is closed.

    If you weren’t planning on holding that security, it is a good idea to close the new position as soon as possible.

    Option spreads such as vertical spreads, add protection to these price fluctuations since you can just exercise the long option to close the assigned share position at the strike price of the long option.

    3. When an option holder exercises their option, how is the assignment partner chosen?

    This is usually a random process. As soon as an option is exercised, the responsible brokerage firm sends a request to the Options Clearing Corporation (OCC). They send back the requested shares, whereafter they randomly choose another brokerage firm that currently has a client that is short the exercised option. Then the chosen broker has to decide which of their clients is assigned. This choice is, once again, random or a time-based priority system is used.

    4. How does assignment work for index options?

    As there aren’t any shares of indexes, you can’t directly be assigned any shares of the underlying asset. Therefore, index options are cash-settled. This means that instead of having to buy or sell shares of the underlying, you simply have to pay the difference between the strike price and the underlying trading price. This makes assignment easier and a lot less likely among index options.

    Note that ETF options such as SPY options are not cash-settled. SPY is a normal security with openly traded shares, so exercise and assignment work just like they do among equity options.

    Conclusion

    I hope this article made you realize that assignment isn’t as bad as it might seem at first. It is just important to understand how the options assignment process works and what affects the likelihood of being assigned.

    To recap, here’s what you should to do when you are assigned:

    if you have enough capital in your account to cover the position, you could either treat the new position as a normal (stock) position and hold on to it or you could close it immediately. If you don’t have a clear trading plan for the new position, I recommend the latter.

    If, on the other hand, you don’t have enough buying power, you will receive a margin call from your broker and the position should be closed automatically.

    Assignment does not have any significant impact on your P&L, but it comes with some carrying risk. Options spreads can offer more protection against this than naked option positions.

    To mitigate assignment risk, you should close option positions early, always keep an eye on the extrinsic value of your option positions, and avoid upcoming dividend securities.

    And always remember, less than 10% of options are exercised, so assignment really doesn’t happen that often, especially not if you are actively trying to avoid it.

    For the specifics of how assignment is handled, it is a good idea to contact your broker, as the procedures can vary from broker to broker.

    Thank you for taking the time and reading this post. If you have any questions, comments, or feedback, please let me know in the comment section below.

    16 Replies to “What is Options Assignment & How to Avoid It”

    hi there
    well seems like finally there is one good honest place. seem like you are puting on the table the whole truth about bad positions. however my wuestion is when can one know where to put that line of limit. when do you recognise or understand that you are in a bad position?
    thanks and once again, a great site.

    Well If you are trading a risk defined strategy the point would be at max loss and not too much time left until expiration. For undefined risk strategies however it can be very different. I would just say if you don’t have too much time until expiration and are far from making money you should use some common sense and admit that you are wrong.

    What would happen in the event of a crash. Would brokers be assigning, options, cashing out these shares, and making others bankrupt. Well, I guessed I sort of answered my own question. Its not easy to understand, especially not knowing when this would come up. But seems like you hit the important aspects of the agreement.

    Actually I wouldn’t imagine that too many people would want to exercise their options in case of a market ctash, because they probably wouldn’t want to hold stocks in this risky and volatile environment.

    And to the part of the questions: making others bankrupt. This really depends on the situation. You can’t get assigned more stock than your option covers. This means as long as you trade with reasonable position sizing nothing too bad can happen. Otherwise I would recommend to trade with defined risk strategies so your maximum drawdown is capped.

    Thanks for writing about assignment Louis. After reading the section how assignment works, I feel I am somewhat unclear about how assignment works when the exerciser exercises Put or Call option. In both cases, if the underlying is an index, is the settlement done through the margin account money? Would you be able to provide a little more detail of how exercising the option (Put vs Call) would work in case of an underlying stock vs Index.

    Thank you very much in advance

    Thanks for the question. Indexes can’t be traded in the same way as stocks can. That’s why index options are settled in cash. If your index option is assigned, you won’t have to buy or sell any shares of the underlying index at the strike price because there exist no shares of indexes. Instead, you have to pay the amount that your index option is ITM to the exerciser of your option.
    Let me give you an example:
    You are short a call option with the strike price of 1000. The underlying asset is an index and it’s price is 1050. This means your call option is 50 points ITM. If someone exercises your long call option, you will have to pay him/her the difference between the strike price and the underlying’s price which would be 50 (1050-1000).
    So the main difference between index and stock options is that you don’t have to buy/sell any shares of the underlying asset for index options.
    I hope this helps. Please let me know if you have any other questions or comments.

    Can the same logic be applied for ETFs as it does Indexes? For example, if I trade the SPY ETF, would it be settled in cash?

    Hi Johnson,
    Exercise and assignment for ETFs such as SPY work just like they do for equities. ETFs have shares that are openly traded, whereas indexes don’t. That’s why indexes are settled in cash, whereas ETFs aren’t.
    I hope this helps.

    There are many articles online that I read that are biased against options tradings and I am a bit surprised to read a really helpful article like this. I find this helpful in understanding options trading, what are the techniques and how to manage the risks. Before, I was hesitant to try this financial game but now, after reading this article, I am considering participating with live accounts and no longer with a demo account. A few months ago, I signed up with a company called IQ Options, but really never involved real money and practiced only with a demo account.

    Thanks for your comment. I am glad to see that you liked the post. However, I don’t recommend sing IQ Option to trade since they are a very shady trading firm. You could check out my Review of IQ Option for all the details.

    this is a great and amazing article. i sincerely your effort creating time to write on such an informative article which has taught me a lot more on what is options assignment and avoiding it. i just started trading but had no ideas on this as a beginner. i find this article very helpful because it has given me more understanding on options trading and knowing the techniques and how to manage the risks. thanks for sharing this amazing article

    You are very welcome

    Hello, the first thing that i noticed when i opened this page is the beauty of the website. i am sure you have put much effort into creating this article and the details are really clear here. after watching the video break down, i fully understood the entire process on how to avoid options assignment.

    Thank you so much for the positive feedback!

    I would love to create a website like yours as the design used is really nice, simple and brings about clarity of the write ups, but then you wrote a brilliant article on how to avoid options assignment. great video here. it was confusing at first. i will suggest another video be added to help some people like me.

    Thanks for the feedback. I recommend checking out my options trading beginner course. In it, I cover all the basics that weren’t explained here.

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    FAQ – Margin

    What is a Margin Account?

    A margin account permits investors to borrow funds from their brokerage firm to purchase marginable securities on credit and to borrow against marginable securities already in the account. Interest is charged on the borrowed funds for the period of time that the loan is outstanding.

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    • Will not be able to have a debit balance
    • May not short stock or sell uncovered options

    Note: Some foreign accounts in specific countries are not able to add margin privileges.

    How do I apply for margin?

    To apply for margin trading, log in to your account at www.tdameritrade.com, go to Client Services > My Profile and select General. In the Elections & routing section, select Apply next to Margin trading. You will be asked to complete three steps:

    1. Read the Margin Risk Disclosure statement.
    2. Enter your personal information.
    3. Agree to the terms.

    Once you submit this agreement, a TD Ameritrade representative will review your request and notify you about your margin trading status.

    How does my margin account work?

    Generally, a client pledges the securities in their account as collateral for a loan that they may then use to purchase additional securities. The Federal Reserve Board (FRB) sets margin requirements for various marginable securities. For instance, the current margin requirement for initial purchase of eligible securities is 50% of the purchase amount. This is commonly referred to as the Regulation T (Reg T) requirement. Under Reg T, you must have at least 50% of the value of the trade in your account in either cash or fully paid marginable securities by settlement date of the trade. Although, The Federal Reserve determines which stocks can be used as collateral for margin loans, TD Ameritrade is not obligated to extend margin on all approved stocks.

    As an example, a client with $10,000 of cash in a margin account would be able to purchase up to $20,000 worth of marginable securities, this is known as a client’s Stock Buying Power.

    How is Buying Power Determined?

    The calculation of stock buying power is the lesser of Special Memorandum Account (SMA) multiplied by two or maintenance excess divided by 30%, unless the security has special margin requirements.

    What is SMA?

    The Special Memorandum Account (SMA), is a line of credit that is created when the market value of securities held in a Regulation T margin account appreciate. The objective of this account is to maintain the buying power that unrealized gains create towards future purchases without creating unnecessary funding transactions. Without SMA, an account would have to withdraw excess equity and redeposit it at the time of the account’s next purchase.

    How does SMA change?

    The SMA account increases as the value of the securities in the account appreciate, but does not decrease when the value of those securities depreciates. However, SMA can only appreciate when account’s equity percentage is 50% or greater. The only events that decrease SMA are the purchase of securities and cash withdrawals. Below is a list of events that will impact your SMA:

    Positive Adjustments to SMA Effect
    Cash Deposit 100% of Value
    Marginable Security Deposits 50% of Value
    Cash Dividend or Interest Credit 100% of Value
    Sale of Long Marginable Securities 50% of Value
    Sale of Long Non-Marginable Securities 100% of Value
    Buy-to-Cover Short Equity Position 50% of the Value
    Premium Collected from Selling an Option (Opening or Closing) 100% of the Value
    Appreciation of Marginable Securities when Reg-T excess is available 50% of the Value
    Negative Adjustments to SMA Effect
    Cash Withdrawal 100% of Value
    Purchase of Marginable Securities 50% of Value
    Purchase of Non-Marginable Securities 100% of Value
    Buying Options (Premium Paid) 100% of Value
    Transfer Out of Marginable Securities 50% of Value

    *Margin Interest and appreciation/depreciation of non-marginable securities do not have any impact on SMA.

    What is Maintenance Excess?

    Maintenance excess, also known as house surplus, is the amount by which your margin equity exceeds the total maintenance requirements for all positions held in your account. Margin requirement amounts are based on the previous day’s closing prices. Maintenance excess applies only to accounts enabled for margin trading. If applicable, you can view this figure under “Margin equity” in the “Margin” section on the displayed page.

    Example

    Client opens account and deposits $10,000 into their TD Ameritrade margin account, the account ledger would look like the following.

    Item Starting
    Cash 1000
    Long Stock Value 0
    Equity 1000
    Reg-T Requirements 0
    SMA 1000
    Maintenance Requirements 0
    Maintenance Excess 1000
    Available Funds for Trading (Option BP on thinkorswim) 1000
    Stock BP 2000

    Client Purchases $10,000 of ABC Corp.

    Item Change Resulting
    Cash -10000 0
    Long Stock Value 10000 10000
    Equity (Marginable Stock + Cash) 10000 10000
    Reg-T Requirements 5000 5000
    SMA -5000 5000
    Maintenance Requirements 3000 3000
    Maintenance Excess 7000 7000
    Available Funds for Trading (Option BP on thinkorswim) -5000 5000
    Stock BP -10000 10000

    ABC position appreciates to $12,000

    Item Change Resulting
    Cash 0 0
    Long Stock Value 2000 12000
    Equity (Marginable Stock + Cash) 2000 12000
    Reg-T Requirements 1000 6000
    SMA 1000 6000
    Maintenance Requirements 600 3600
    Maintenance Excess 1400 8400
    Available Funds for Trading (Option BP on thinkorswim) 1000 6000
    Stock BP 2000 12000

    ABC depreciates to $5,000

    Item Change Resulting
    Cash 0 0
    Long Stock Value -7000 5000
    Equity (Marginable Stock + Cash) -7000 5000
    Reg-T Requirements -3500 2500
    SMA 0 6000
    Maintenance Requirements -2100 1500
    Maintenance Excess -3900 3500*
    Available Funds for Trading (Option BP on thinkorswim) 2500 3500
    Stock BP -333 11667

    *Because Maintenance excess is less than SMA it determines buying power in this example

    ABC appreciates to $10,000

    Item Change Resulting
    Cash 0 0
    Long Stock Value 5000 10000
    Equity (Marginable Stock + Cash) 5000 10000
    Reg-T Requirements 2500 5000
    SMA 0 6000
    Maintenance Requirements 1500 3000
    Maintenance Excess 2500 7000
    Available Funds for Trading (Option BP on thinkorswim) 3500 6000
    Stock BP 333 12000

    Client sells ABC position for $10,000

    Item Change Resulting
    Cash 10000 10000
    Long Stock Value -10000 0
    Equity (Marginable Stock + Cash) 10000 10000
    Reg-T Requirements -5000 0
    SMA 5000 11000
    Maintenance Requirements -3000 0
    Maintenance Excess 3000 10000
    Available Funds for Trading (Option BP on thinkorswim) 4000 10000
    Stock BP 10000 22000*

    *In this example, Maintenance Excess determines the funds available for trading. However, SMA multiplied by 2 is less than Maintenance excess divide by 30% so SMA is determining Stock Buying Power.

    How much stock can I buy?

    Generally, an account that is not breaching concentration requirements, can determine how much stock they can purchase by dividing their Funds Available for Trading (Option BP on thinkorswim) by the securities margin requirement.

    Example

    Client has the following buying power available:

    Funds Available for Trading Stock Buying Power
    $16,3000 $54,333.33

    Client wishes to purchase the maximum amount of ABC Corp. ABC Corp has a 30% margin requirement.

    In this case the client could purchase $54,333.33 of ABC Corp.

    The client decides not to purchase ABC, but would rather own XYZ which has a 40% margin requirement.

    In this case, the same client, would only be able to purchase $40,750 of XYZ due to its 40% requirement.

    Still have questions?

    You can reach a Margin Specialist by calling 877-877-0272 ext 1

    What is a Margin Call?

    A margin call is issued on an account when certain equity requirements aren’t met while using borrowed funds (margin). When a margin call is issued, you will receive a notification via the Secure Message Center in the affected account. There are several types of margin calls and each one requires a specific action.

    How is it reflected in my account?

    When your account is in a margin call you will be notified via the *Secure Message Center. There will also be a yellow banner at the top of your TD Ameritrade homepage notifying you of the call and the deficiency amount.

    Finally, your account’s Funds Available for Trading (Option BP on Thinkorswim) will be reflected as a negative number.

    Website

    thinkorswim

    Types of Margin Calls

    Federal Regulation T Margin Call

    • What triggers the call: A Reg T call may be issued on an account when a client uses margin in an opening purchase or short sell transaction and does not satisfy the Federal Reserve Board’s initial minimum equity requirements. Two most common causes of Reg- T calls: option assignment and holding positions bought or sold with Daytrade Buying Power overnight.
    • When is this call due: Reg- T calls are due (T+4) two days after the settlement day, the fourth day after the trade date.
    • How to meet the call: Reg T calls may be covered by depositing cash or marginable stock, closing long or short equity positions, or transferring in funds or marginable stock from another TD Ameritrade account.

    Maintenance Call

    • What triggers the call: A maintenance call is issued when your marginable equity drops below your account’s maintenance requirements for holding securities on margin. Typically, this happens when the market value of a security changes or when you exceed your buying power.
    • When is this call due: TD Ameritrade requires all Maintenance Calls be met (T+5) three days after settlement (the fifth day after the trade date). PENDING MARKET CONDITIONS.
    • How to meet the call: Maintenance calls may be covered by depositing cash or marginable stock, closing long or short equity positions, or transferring in funds or marginable stock from another TD Ameritrade account.

    Minimum Equity Call

    • What triggers the call: A minimum equity call is issued when your account’s margin equity has dropped below our minimum equity requirements for holding securities on margin. Currently $2000.00.
    • When is this call due: TD Ameritrade requires all Equity Calls be met (T+5) three days after settlement (the fifth day after the trade date). PENDING MARKET CONDITIONS.
    • How to meet the call: Min. Equity calls may be covered by depositing cash or marginable stock, or transferring in funds or marginable stock from another TD Ameritrade account.

    Short Equity Call

    • What triggers the call: A short equity call is issued when your account’s margin equity has dropped below our minimum equity requirements for selling naked options. Currently $5000.00.
    • When is this call due: TD Ameritrade requires all Equity Calls be met (T+5) three days after settlement (the fifth day after the trade date). PENDING MARKET CONDITIONS.
    • How to meet the call: Short Equity calls may be covered by depositing cash or marginable stock, or transferring in funds or marginable stock from another TD Ameritrade account.

    Day Trade Buying Power Call (DTBP)

    • What triggers the call: Your day trade buying power (DTBP) figure at the start of day is the maximum amount available to use for making round-trip day trades for that day. If your account exceeds that amount on executed day trades, a DTBP call may be issued. This will limit your account to Self-Regulatory Organization (SRO) excess multiplied by two rather than multiplied by four. Your DTBP will also not replenish after each trade. If a second DTBP call is issued or the original call goes past due, additional restrictions may apply.
    • When is this call due: TD Ameritrade requires all DTBP Calls be met (T+5) three days after settlement (the fifth day after the trade date). PENDING MARKET CONDITONS.
    • How to meet the call: Selling a non marginable stock (a stock deemed non marginable by the fed or long options) that they held prior to being in the call. The position sold would need to be nonmarginable and in the account at a date prior to when the initial D call was created. Sending in fully paid for securities equal to the 1.25 x the amount of the call. Sending in funds equal to the amount of the call. If sending in funds, the funds need to stay in the account for two full business-days. (NASD Rule)

    Day Trade Minimum Equity Call

    • What triggers the call: A day trade minimum equity call will be issued if your account started the day with less than $25,000 in equity and is identified as a pattern day trading account. If a round trip is executed in your account while in a day trade equity call, your account will have a 90-day restriction to closing transactions only. This restriction will remain in place as long as you qualify as a pattern day trader and start the day under $25,000 equity.
    • When is this call due: This call has no due date. The account will remain in a EM call until the account value is above $25k or the day trade flag is removed.
    • How to meet the call: Calls may be met by depositing cash, marginable stock, non-marginable stock or appreciation that brings the start of the day value of the account above the $25,000 minimum.

    How do I meet my margin call?

    • Deposit the original call amount
    • Liquidate securities so that your account would be positive based on the closing prices of the normal market session
    • Deposit fully paid-for marginable securities*
    • Or any combination of the aforementioned ways

    I have multiple margin calls in my account, can I just liquidate enough to meet the first margin call?

    No, TD Ameritrade will only consider this margin call met if you deposit the full amount of the original call. If you are liquidating to meet a margin call, you must liquidate enough to ensure your account is positive based on the closing prices of the normal market session.

    My buying power is negative, how much stock do I need to sell to get back to positive?

    Generally, you can take your Funds Available for Trading and divide by the margin requirement of the security you plan to liquidate to determine the total notional value which must be liquidated to get back to positive. Liquidating positons can be complex, if you need additional assistance call a margin Specialist at 877-877-0272 ext 1.

    Example 1:

    The following account is deficient by $2,000 and is looking to get back to positive by selling a stock in the account which has a 40% margin requirement.

    Funds Availabe for Trading Stock Buying Power
    -2000 -6666.67

    In this case, the client would need to liquidate $5000 worth of a stock with a 40% margin requirement in order to meet their $2000 deficiency.

    Example 2:

    The following account is in a Regulation-T call in the amount of $2,000 and is looking to get back to positive by selling a stock in the account.

    Funds Available for Trading Stock Buying Power
    -2000 -6666.67

    In this case, the client would need to liquidate $4000 worth of stock in order to meet the $2000 Reg-T call.

    *The deposit of marginable securities does not give dollar-for-dollar relief. In order to determine how much relief marginable securities offer, please contact a margin representative at 877-877-0272, ext 1.

    How are Maintenance Requirements on a Stock Determined?

    In accordance with the rules of the exchanges, TD Ameritrade places “Initial and Maintenance” margin requirements on accounts. These requirements dictate the amount of equity needed in an account in order to hold and create new margin positions.

    All broker/dealers, including TD Ameritrade, Inc., reserve the right at any time to adjust minimum maintenance requirements. This adjustment can be done on an individual account basis as well as on a stock-by-stock basis, depending on a stock’s trading volatility and other factors. Your account may be subject to higher margin equity requirements based on how market fluctuations affect your portfolio.

    Below are the maintenance requirements for most long and short positions. However, concentrated positions and certain stocks may have special requirements between 35% and 100%.

    Non-marginable stocks cannot be used as collateral for a margin loan. Likewise, you may not use margin to purchase non-marginable stocks.

    Postion Minimum Maintenance Requirement
    Long stock position valued at $4.01 per share or more 30% of the current market value of the stock
    Long stock position value between $2 and $4 per share $2 per share
    Long stock position valued at $1.99 or less per share 100% of the current market value of te stock
    Short stock position valued at $16.67 per share or more 30% of the current market value of the stock
    Short stock position valued between $5.01* and $16.67 per share $5 per share
    Short stock position valued between $2.50 and $5 per share 100% of the current market value of the stock
    Short stock position valued at less than $2.50 per share $2.50 per share

    What is a Special Margin requirement?

    Some securities have special maintenance requirements that require you to have a higher percentage of equity in your account in order to hold them on margin. Typically, they are placed on positions held in the account that pose a greater risk. These higher-risk positions may include lower-priced securities, highly concentrated positions, highly volatile securities, leveraged positions and other factors. There are no restrictions from trading securities with special maintenance requirements as long as the requirement can be met.

    For more information on Concentrated Positions (hyperlink to page) or contact a Margin Specialist at 877-877-0272 ext 1.

    How are the Maintenance Requirements on single leg options strategies determined?

    Long Options: The buyer of long options must pay 100% of the purchase price. Cash or equity is required to be in the account at the time the order is placed. Regulation T and maintenance requirements are also 100%.

    Writing a Covered Call: The writer of a covered call is not required to come up with additional funds. The backing for the call is the stock. During the life of the covered call, the underlying security cannot be valued higher, for margin requirement and account equity purposes, than the strike price of the short call.

    Writing a Cash Secured Put: The put-writer must maintain a cash balance equal to the total exercise value of the contracts. If the option is assigned, the writer of the put option purchases the security with the cash that has been held to cover the put.

    Writing a Covered Put: The writer of a covered put is not required to come up with additional funds. The backing for the put is the short stock. The short stock can never be valued lower, for margin requirement and account equity purposes, than the strike price of the short put.

    Uncovered Equity Options

    Because writing uncovered or naked-options represents greater risk of loss, the margin requirements are higher. The minimum equity for writing uncovered options is $5000 and requires an initial deposit and maintenance of the greatest of the following three formulas:

    1. 20% of the underlying stock less the out of the money amount (if any), plus 100% of the current market value of the option
    2. Calls: 10% of current market value of the stock PLUS the premium valuePuts: 10% of Exercise Value of the underlying stock PLUS the premium value
    3. 50 per contract plus 100 % of the premium
    Scenario 1
    # of naked puts 5
    Price of security $81.25
    Strike price of option $81.00
    Option premium $2.00

    Example 1

    20% Calculation
    Percentage of Stock Value: 20% x [$81.25 x (5 x 100)] $8,125.00
    Out-of-the-Money Amount: ($81 – $81.25) x 500 -$125.00
    Current Value of the Option: $2.00 x 500 $1,000.00
    Total Requirement $9000.00

    Example 2

    10% Calculation
    Percentage of Stock Value: 10% x [$81.25 x (5 x 100)] $4,050.00
    Current Value of the Option: $2.00 x 500 $1,000.00
    Total Requirement $5,050.00

    Example 3

    $50 plus premium Calculation
    $50 x 5 contacts $250.00
    Current Value of the Option: $2.00 x 500 $1,000.00
    Total Requirement $1,250.00

    In Scenario 1, the margin requirement would be $9000 as it is the highest requirement of the 3 examples.

    Scenario 2
    # of naked puts 5
    Price of Security $81.25
    Strike price of the Option $70.00
    Option Premium $0.60

    Example 1

    20% Calculation
    Percentage of Stock Value: 20% x [$81.25 x (5 x 100)] $8,125.00
    Out-of-the-Money Amount: ($70 – $81.25) x 500 ($5,625.00)
    Current Value of the Option: $0.60 x 500 $300.00
    Total Requirement $2,800.00

    Example 2

    10% Calculation
    Percentage of the Excercise Value: 10% x [$81 x (5 x 100)] $4,050.00
    Current Value of the Option: $0.60 x 500 $300.00
    Total Requirement $4,350.00

    Example 3

    $50 plus premium Calculation
    $50 x 5 contracts $250.00
    Current Value of the Option: $0.60 x 500 $300.00
    Total Requirement $550.00

    In Scenario 2, the margin requirement would be $4350 as it is the highest requirement of the 3 examples.

    What are the Maintenance Requirements for Equity Spreads?

    Equity spreads

    Debit Spreads – The buyer of a debit spread must pay 100% of the purchase price of the spread. Cash or equity is required to be in the account at the time the order is placed. Regulation T and maintenance requirements are also 100%.

    Debit Spread Scenario

    Client buys 5 of the October 65/60 put spread in XYZ security for $1.75

    Spread Scenario
    Price of Security $65.23
    # of October Puts Purchased 5
    Strike Price $65.00
    Option Premium Paid $2.00
    # of October Puts Sold 5
    Strike Price $60.00
    Option Premium Received $0.25

    Example

    In this scenario, the margin requirement would be the total cash spent purchasing the debit spread, $875.

    Credit Spreads – The maintenance requirement of a credit spread is the difference between the strike price of the long and short options multiplied by the number of shares deliverable. Cash generated from the sale will be applied to this requirement and the difference will be due upon execution of the trade.

    Credit Spread Scenario

    Client sells 5 of the October 70/65 put spread in XYZ security for $3.25

    Long Spread Calculation
    Premium Paid for 65 puts: $2 x (5 x 100) $1000.00
    Premium Received for 60 puts: $0.25 x (5 x 100) ($125.00)
    Total Requirement
    Spread Scenario
    Price of Security $65.25
    # of October Puts Sold 5
    Strike Price $70.00
    Option Premium Received $5.75
    # of October Puts Purchased 5
    Strike Price $65.00
    Option Premium Paid $2.00

    Example

    Short Spread Calculation
    Strike Multiplied by # Contracts sold: $70 x (5 x 100)
    Strike Multiplied by # Contratcs bought: $65 x (5 x 100) ($32,500.00)
    Total Requirement $2,500.00

    The margin requirement for this spread is $2500. The client will collect $1875 from the sale of the spread ((5.75-2.00) *500)) and will be responsible for having the difference between the margin requirement and premium collected, $625, when entering the trade.

    Equity Straddles

    Long Straddle – Margin Requirements for purchasing long straddles are the same as for buying any other long option contracts. The buyer of a long straddle must pay 100% of the purchase price. Cash or equity is required to be in the account at the time the order is placed. Regulation T and maintenance requirements are also 100%

    Straddle Scenario

    Client buys 5 October 65 Straddles in XYZ Security for $4.25

    Spread Scenario
    Price of Security $62.25
    # of October Puts Purchased 5
    Strike Price $65.00
    Option Premium Paid $2.00
    # of October Calls Purchased 5
    Strike Price $65.00
    Option Premium Paid $2.25

    Example

    Long Straddle Calculation
    Premium Paid for 65 Puts: $2 x (5 x 100) $1000.00
    Premium Paid for 65 Calls: $2.25 x (5 x 100) $1,125.00
    Total Requirement $2,125.00

    In this scenario, the margin requirement would be the total cash spent purchasing the straddle, $2125.

    Short Straddle

    The margin requirement is the greater of the uncovered requirement for the calls or puts, plus the value of the premium received on the other, non-holding , side of the straddle, and a minimum account value of $5000.

    Straddle Scenario

    Client sells 5 October 65 Straddles in XYZ Security for $4.25

    Spread Scenario
    Price of Security $65.25
    # of October Puts sold 5
    Strike Price $65.00
    Option Premium received $2.00
    # of October Calls sold 5
    Strike Price $65.00
    Option Premium Received $2.25
    20% Calculation for Call
    Percentage of Stock Value: 20% x [$65.25 x (5 x 100)] $6,525.00
    Out-of-the-Money Amount: $0.00
    Current Value of the Option: $2.25 x 500
    Total Requirement $7,650.00
    20% Calculation for Put
    Percentage of Stock Value: 20% x [$65.25 x (5 x 100)] $6,525.00
    Out-of-the-Money Amount: ($65 – $65.25) x 500 ($125.00)
    Current Value of the Option: $2.00 x 500 $1,000.00
    Total Requirement $7,400.00
    Short Straddle Calculation
    Greater Requirement (calls) $7,650.00
    Current Value of the Non-Holding Side (puts) $1,000.00
    Total Requirement $8,650.00

    In this scenario, the total margin requirement for the short straddle is $8650. This is derived by taking the margin requirement for the naked calls (the greater requirement) and adding to it the current value of the puts. Cash generated from the sale will be applied to this requirement and the difference will be due upon execution of the trade.

    What are the Maintenance Requirements for Index Options?

    Long Index Options: The buyer of a long index option must pay 100% of the purchase price of the options contract. Regulation T and maintenance requirements are both 100%.

    Index Spreads and Straddles: The margin requirements to create spreads and straddles are computed in the same manner as those for equity options.

    Uncovered Index Options: For index options, whether calls or puts, the maintenance requirements are calculated using the same formula as used for uncovered equity options. The initial deposit and maintenance requirements must equal 20% of the current index value minus the out-of-the-money amount, if any, plus the premium amount received. This amount must meet or exceed a minimum amount equal to 10% of the current index value times the index multiplier, plus the option’s market value.

    Scenario

    Client sells 10 October 205 calls for $5.25

    Uncovered Index Option Scenario
    #of Naked Calls 5
    Index Value $201.55
    Index Multiplier $100.00
    Strike price of Option $205.00
    Option Premium $5.25

    Example 1

    20% Calculation for Index Call
    Percentage of Index Value: 20% x [$201.55 x (5 x 100)] $20,155.00
    Out-of-the-Money Amount: ($201.55 – $205) x 500 ($1,725.00)
    Current Value of the Option: $5.25 x 500 $2,625.00
    Total Requirement $21,055.00

    Example 2

    10% Calculation of Index Call
    Minimum Percentage of Index Value: 10% x [$201.5 x (5 x 100)] $10,077.50
    Current Value of the Option: $5.25 x 500 $2,625.00
    Total Requirement $12,702.50

    In this scenario, the maintenance requirement for the short call would be $21,055 because it is the greater requirement of the two formulas.

    Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

    What are the margin requirements for Mutual Funds?

    Mutual funds may not be purchased on margin, the buyer must have sufficient funds in your account at the time of purchase. Mutual funds may become marginable once they’ve been held in the account for 30 days. As a result, their mutual fund positions may be segregated into marginable and non-marginable holdings.

    Maintenance requirements for a Mutual Fund once it becomes marginable:

    When are mutual funds marginable?

    30 days after settlement.

    What is the requirement after they become marginable?

    30% regardless of price.

    25% money market mutual funds.

    Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.

    Are Rights marginable?

    No, they are non-marginable securities.

    Are Warrants marginable?

    Generally, they are non-marginable at TD Ameritrade. Contact a member of the margin team, at 877-877-0272 ext 1, for specific information about your specific Warrant.

    What are the margin requirements for Fixed Income Products?

    Fixed Income

    • Moody’s Rating: Baa3 or better
    • S&P Rating: BBB- or better
    • Fitch Rating: BBB- or better

    Corporate Convertible Bonds

    • Initial requirement: 50% of the market value
    • Maintenance requirement: 30% of the market value

    Corporate Bonds

    • Initial requirement: (Greater of) 30% of the market value or 7% of the face value
    • Maintenance requirement: (Greater of) 25% of the market value or 7% of the face value

    Municipal Bonds

    • Initial requirement: (Greater of) 20% of the market value or 7% of the face value
    • Maintenance requirement: (Greater of) 20% of the market value or 7% of the face value

    United States Treasury Securities

    Maintenance requirements for Coupon and Zero-Coupon Bonds are as follows:

    Less than 5 years to maturity

    • Coupon: 5% of market value
    • Zero-Coupon Bonds: 5% of market value

    5 – 20 years to maturity

    • Coupon: 5% of market value
    • Zero-Coupon Bonds: Greater of 5% of market value or 3% of par

    Greater than 20 years to maturity

    • Coupon: 10% of market value
    • Zero-Coupon Bonds: Greater of 10% of market value or 3% of par

    Fixed-income investments are subject to various risks including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. For further details, please call 800-934-4445.

    What is Margin Interest?

    Margin interest is the rate charged on the amount of the margin debit balance after the settlement of your purchase or withdrawal transaction. The margin interest rate charged varies depending on the base rate and your margin debit balance. If your account is margin enabled, you can see your base lending rate on the displayed page by selecting “View margin rate” under “Margin.”

    What is the margin interest charged?

    TD Ameritrade utilizes a base rate to set margin interest rates. When setting the base rate, TD Ameritrade considers indicators including, but not limited to, commercially recognized interest rates, industry conditions relating to the extension of credit, the availability of liquidity in the marketplace, the competitive marketplace and general market conditions. The interest rate charged on a margin account is based on the base rate. Your particular rate will vary based on the base rate and the margin balance during the interest period. You can review the base rate and the balance schedule on the Rates & Fees page.

    *Please note: The base rate may be changed without prior notice. A change to the base rate reflects changes in the rate indicators and other factors. Any changes will be posted on the Rates & Fees page when changes are affected within 30 days after the effective change.

    How is Margin Interest calculated?

    Margin interest rates vary based on the amount of debit and the base rate. The formula is: Interest Rate x Margin Debit / 360 = Daily Interest Charge. Although interest is calculated daily, the total will post to your account at the end of the month.
    Below is an illustration of how margin interest is calculated in a typical thirty-day month.

    *The following is an illustration. Your actual margin interest rate may be different.

    Daily Debit Balance Margin Interest Rate Daily Interest Charge (Interest Rate/360) x Number of Days Number of Days Total Interest Charge
    $24,000.00 10.50% $7.00 10 $70.00
    $26,000.00 10.25% $7.40 8 $59.22
    $9,500.00 10.75% $2.84 4 $11.35
    $ – 0% $ – 8 $ –
    Total $140.57

    How do I avoid paying Margin Interest?

    If you don’t want to pay margin interest on your trades, you must completely pay for the trades prior to settlement. If you need to withdraw funds, make sure the cash is available for withdrawal without a margin loan to avoid interest. You may have to wait for recent trades or newly deposited funds to settle before you withdraw funds.

    How do I view my current margin balance?

    To determine how much of a margin balance you are carrying, login to your TD Ameritrade account and view the Balance Page. Margin Balance considering cash alternatives is under the margin tab and will inform you of your current margin balance.

    How do I calculate how much I am borrowing?

    Generally, margin balance can be calculated by using the following formula:*

    Value of Long Marginable Securities – Equity = Margin Balance

    *Assumes account is only long stock

    Scenario

    Company Shares Price Total Value
    AAPL 10 $152.29 $1,522.90
    BA 4 $355.14 $1,420.56
    BAC 25 $28.77 $719.25
    INTC 20 $47.70 $954.00
    HD 35 $175.66 $6,148.10
    Total Value of Positions $10,764.81
    Account Equity $5,250.00
    MarginBalance ($5,514.81)

    In the above example, the client’s account value is $5250, but the client owns $10,764.81 worth of securities. The difference between these numbers (-$5514.81) is the amount the client is borrowing on margin.

    Does the cash collected from a short sale offset my margin balance?

    No, TD Ameritrade segregates cash from a short sale and does not apply it to the margin balance.

    When is Margin Interest charged?

    Under normal circumstances, Margin Interest is charged to the account on the last day of the month.

    What is concentration?

    There are special maintenance requirements in cases where 50% or more of a total portfolio is concentrated into a single margin position. When this occurs, TD Ameritrade checks to see whether:

    • A single position makes up more than 50% of a total portfolio, and;
    • That single position’s market value is greater than or equal to the total equity in a margin account

    Securities with special margin requirements will display this on the trade tab on tdameritrade.com when creating an order. This can be seen below:

    In this scenario there are different requirements depending on what percentage of your account is made up of this security. When the stock is 50%-69% of your total stock position it requires 70% of the notional value as a maintenance requirement. When the security is 70%-100% of your account it requires you have 100% of the value of the security in available funds.

    ***Note: TD Ameritrade rounds to the nearest whole number, so an account that has 49.6% concentration in a security will be rounded up to 50% and held at the second tier.

    Example 1:
    Client has the following positions

    Percent of total holdings

    (position value/total stock value)

    Concentration
    Symbol QTY Price Value
    ABC 1000 $25.50 $25,500.00 72%
    XYZ 250 $35.50 $8,875.00 25%
    BBB 100 $12.00 $1,200.00 3%
    Total Stock $35,575.00

    Current client account equity = $24,000

    In this scenario, ABC stock is 72% of the total holdings of the client. ABC stock has special margin requirements of:

    • No concentration = 30%
    • 50% concentration = 30%
    • 70% concentration = 40%
    • 90% concentration = 40%

    So, given this table of requirements and where ABC is in relation to the clients holdings (73%), and over his equity of $24,000, his requirement on the position will be 40%. This is an increase above the stocks normal requirement of 30%

    Example 2:
    Client has the following positions:

    Percent of total account

    (position value/total stock value)

    Concentration
    Symbol QTY Price Value
    AAA 1000 $35.00 $35,000.00 100%
    Total Stock $25,500.00

    Current client account equity = $20,000
    In this scenario AAA stock is 100% of the clients holdings. AAA stock has special requirements of:

    • No concentration = 50%
    • 50% concentration = 50%
    • 70% concentration = 70%
    • 90% concentration = 70%

    So given this table of requirements and the stock being the clients entire holding his requirement on the position will be 70%. This is an increase above the normal requirements of 50% as it is over his equity and 100% concentrated.

    Example 3:
    Client has the following positions

    Percent of total account

    (position value/total stock value)

    Concentration
    Symbol QTY Price Value
    BBB 250 $25.00 $6,250.00 13%
    ABC 1000 $25.50 $25,500.00 51%
    ZZZ 300 $60.00 $18,000.00 36%
    Total Stock $49,750.00

    Current client account equity = $50,000
    In this scenario BBB is 51% of the clients holdings which would constitute concentration of 40% under the following concentration tiers:

    • No concentration = 30%
    • 50% concentration = 40%
    • 70% concentration = 50%
    • 90% concentration = 50%

    The reason this security will not be held at 40% is due to the clients equity being higher than the positions value:

    Equity: $50,000 > position value: $25,000

    ***Note: Margin requirements (on all positions, whether concentrated or not), may change at any time with or without notice. TD Ameritrade reserves the right at any time to adjust the minimum maintenance requirement of concentrated positions. This adjustment can be done on an individual account basis, as well as on a stock-by-stock basis, depending on a stock’s trading volatility and other factors. Your account may be subject to higher margin equity requirements based on how market fluctuations affect your portfolio. ***

    What are the Pattern Day Trading rules?

    The Pattern Day Trading rules were enacted by FINRA to require that minimum levels of equity be deposited and maintained in Day Trading accounts.

    What is a “Day Trade”?

    FINRA rules define a Day Trade as the purchase and sale, or the sale and purchase, of the same security on the same day (regular and extended hours) in a margin account. This definition encompasses any security, including options. Just purchasing a security, without selling it later that same day, would not be considered a Day Trade.

    What is a “Pattern Day Trader”?

    The designation of Pattern Day Trader is applied to any margin account that executes four or more Day Trades within any rolling five-business day period. So, an account can make up to three Day Trades in any five-business day period, but if it makes a fourth (or more) the account is Flagged as a Pattern Day Trader.

    What if an account is Flagged as a Pattern Day Trader?

    A pattern day trader’s account must maintain a day trading minimum equity of $25,000 on any day on which day trading occurs. The $25,000 account-value minimum is a start-of-day value, calculated using the previous trading day’s closing prices on positions held overnight. Day trade equity consists of marginable, non-marginable positions, and cash . Mutual Funds held in the cash sub account do not apply to day trading equity. Also, funds held in the Futures or Forex sub-accounts do not apply to day trading equity. To avoid an account restriction, pattern day-trader accounts that fall below the $25,000 minimum equity requirement should not day trade.

    What if an account is Flagged and the account equity is above $25,000?

    The account can continue to Day Trade freely.

    What if an account is Flagged and the account equity is below $25,000?

    An account that is both A) Flagged as a Pattern Day Trader and B) has less than $25,000 equity will be issued a Day Trade Minimum Equity Call (“EM Call”). The Call does not have to be met with funding, but while in the Call the account should not make any Day Trades. If a Day Trade is made while in the Call the account will be set to Restricted – Closing Only.

    How can an account get out of a Day Trade Minimum Equity Call?

    An account will no longer be in an EM Call when either the Flag is removed from the account (which happens after 90 days) or the account equity is brought above $25,000.

    What if an account executes a Day Trade while in an EM Call?

    The account will be set to Restricted – Close Only. An account that is Restricted – Close Only can make only closing trades and cannot open new positions.

    How can an account get out of a Restricted – Close Only status?

    The account will remain Restricted until either the Flag is removed (which happens after 90 days) or the account value is brought above $25,000.

    Are there any exceptions to the 90-day designation?

    TD Ameritrade allows for limited removals of the Pattern Day Trader Flag before the 90 day period expires. Please contact us at 800-669-3900 for more information.

    Are Futures or Forex subject to the PDT rules?

    Both Futures/Futures Options and Forex are regulated by the NFA, which has no rules on day trading. As such, Futures/Futures Options and Forex round trips don’t count toward the PDT rules and funds covering margin on Futures/Futures Options and Forex positions don’t count toward the $25,000 FINRA equity requirement.

    Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. Margin is not available in all account types. Margin trading privileges subject to TD Ameritrade review and approval. Carefully review the Margin Handbook and Margin Disclosure Document for more details. Please see our website or contact TD Ameritrade at 800-669-3900 for copies.

    This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

    Market volatility, volume and system availability may delay account access and trade executions.

    Past performance of a security or strategy is no guarantee of future results or investing success.

    Trading stocks, options, futures and forex involves speculation, and the risk of loss can be substantial. Clients must consider all relevant risk factors, including their own personal financial situation, before trading. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors.

    Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Prior to trading options, you should carefully read Characteristics and Risks of Standardized Options.

    Spreads, Straddles, and other multiple-leg option orders placed online will incur $0.65 fees per contract on each leg. Orders placed by other means will have additional transaction costs.

    Futures and futures options trading is speculative and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.

    Forex trading involves leverage, carries a high level of risk and is not suitable for all investors. Please read the Forex Risk Disclosure prior to trading forex products.

    Futures and forex accounts are not protected by the Securities Investor Protection Corporation (SIPC).

    Futures, futures options, and forex trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify. Forex accounts are not available to residents of Ohio or Arizona.

    Access to real-time market data is conditioned on acceptance of the exchange agreements. Professional access differs and subscription fees may apply. For details, see our Professional Rates & Fees.

    Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request. TD Ameritrade does not make recommendations or determine the suitability of any security, strategy or course of action for you through your use of our trading tools. Any investment decision you make in your self-directed account is solely your responsibility.

    TD Ameritrade, Inc., member FINRA/SIPC.

    TD Ameritrade Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc., and the Toronto-Dominion Bank © 2020 TD Ameritrade IP Company, Inc. All rights reserved. Used with Permission.

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