What Is Margin Call? Definition & Example

Why It Matters

A margin call means your broker is about to liquidate your positions unless you deposit funds immediately. It happens when losses push your equity below maintenance requirements. Prevention is better than response.

How It Works

Account equity drops below maintenance margin → broker issues a margin call → you must deposit funds or close positions immediately. If you don't respond, the broker can liquidate any or all positions at their discretion.

Example

You have $50K equity, $40K in short options margin. SPY drops 3%, your positions lose $8K. Equity: $42K. Maintenance requirement jumps to $45K (vol increased margin). Margin call: deposit $3K or close positions.

Common Mistakes

Using 100% of buying power. Margin requirements increase when volatility spikes — exactly when your positions are losing money. Keep 30-40% of buying power unused. A margin call during a selloff forces you to close at the worst prices.

Related Terms

DTE (Days to Expiration)

Enter at 30–45 DTE for optimal theta/gamma balance. Close or roll at 21 DTE or 50% profit — whichever comes first.

Assignment

Not a disaster — it's the plan in the wheel strategy. If you only sell puts on stocks you'd own, assignment is just the next step.

Roll (Rolling)

Roll for a net credit or don't roll at all. Rolling for a debit just delays a loss. Best done before the position goes deep ITM.

Annualized Return

Looks impressive but is misleading if you ignore losses. Track actual account returns, not annualized returns on winners only.

Breakeven

Always know your breakeven before entering. If the stock can realistically reach it, either widen the margin or skip the trade.

Bid-Ask Spread

Wide bid-ask = hidden cost on every trade. Stick to liquid underlyings where the spread is under 5% of the option price.

Frequently Asked Questions