Regulation T Margin

Regulation T (Reg T) is the Federal Reserve Board rule that governs the amount of credit brokers can extend to customers for purchasing securities. For stock purchases, Reg T requires a minimum of 50% initial margin — meaning you must put up at least half the value in cash. For options, Reg T establishes the framework for margin calculations on short options, spreads, and combination positions. Most retail options traders operate under Reg T margin rules.

Why It Matters

Reg T margin rules determine how much buying power you need for every trade. They set the floor for margin requirements — your broker can (and often does) require more than the Reg T minimum, but never less. Understanding Reg T helps you calculate how much capital each position requires, plan your portfolio allocation, and avoid margin calls.

For options traders, Reg T creates a standardized framework for calculating margin on short options and spreads. These calculations directly affect your position sizing and the number of trades you can have on simultaneously. The difference between Reg T margin and portfolio margin can be a 3x to 6x difference in buying power.

How It Works

Reg T for stock:

• Initial margin: 50% of the purchase price (you can borrow up to 50%)
• Maintenance margin: 25% minimum (FINRA rule; most brokers require 30-35%)
• If your equity falls below maintenance margin, you receive a margin call

Reg T for options:

Long options (bought): Must be paid in full. You cannot borrow to buy options. 100% cash required.

Short naked calls:

Greater of: 20% of underlying - OTM amount + premium, OR 10% of underlying + premium

Short naked puts:

Greater of: 20% of underlying - OTM amount + premium, OR 10% of strike price + premium

Credit spreads:

Margin = width of spread - credit received

Debit spreads:

Margin = debit paid (must be paid in full)

Covered calls: No additional margin required beyond holding the stock.

Cash-secured puts: Full strike price must be held in cash (in a cash account) or the Reg T naked put margin applies (in a margin account).

Key Reg T concepts:

• Initial margin: The amount required when you open the position
• Maintenance margin: The ongoing minimum equity required to hold the position
• Margin call: Triggered when your equity falls below maintenance. You must deposit cash or close positions.
• Day trade margin: Pattern day traders get 4:1 intraday leverage (25% margin) under Reg T

Reg T limitations: Reg T uses fixed-percentage formulas that do not account for portfolio-level hedging. If you own stock and sell a protective put, Reg T calculates margin on each position independently rather than recognizing that the put reduces overall risk. This inefficiency is what portfolio margin was designed to address.

Quick Example

You have a $50,000 Reg T margin account. You want to sell a naked put on a $200 stock at the $190 strike, collecting $4.00 premium.

Margin calculation: 20% of $200 - $10 (OTM amount) + $4.00 = $40 - $10 + $4 = $34 per share, or $3,400 per contract.

You can sell approximately 14 contracts ($50,000 / $3,400 = 14.7). Each contract obligates you to buy 100 shares at $190, so your total notional exposure is $266,000 — more than 5x your account value. This is why margin discipline matters.

If the stock drops to $185, the OTM amount disappears and the margin increases to: 20% of $185 + new premium (say $9.00) = $37 + $9 = $46 per share. Your margin requirement has increased, potentially triggering a margin call if you are fully allocated.