The standard margin system for US retail accounts under Federal Reserve Regulation T. Calculates option margin using a fixed formula: typically 20% of underlying minus the OTM amount.
⚡ KEY TAKEAWAY: Reg T is predictable but conservative. A naked SPY put at $565 with SPY at $580 requires about $10,100 in margin. Portfolio margin would require roughly $3,500 for the same trade.
Why It Matters
Reg T is the default margin system for most retail accounts. It's conservative and predictable — you always know the formula. The tradeoff: it requires more capital than portfolio margin for the same trades.
How It Works
Federal Reserve Regulation T sets initial margin at 50% for stocks. For options, the formula varies: naked puts = 20% of underlying minus OTM amount (minimum varies). Credit spreads = max loss. Covered calls = no additional margin beyond the shares.
Example
Naked SPY $565 put (SPY at $580): 20% × $580 × 100 - ($580-$565) × 100 = $11,600 - $1,500 = $10,100. The same trade as a $565/$560 spread: max loss = $500 - credit. Reg T treats spreads much more favorably.
Common Mistakes
Running out of buying power because you're using Reg T on undefined-risk trades. If you want to sell strangles or naked puts at scale, you need portfolio margin. Reg T is designed for defined-risk strategies and covered positions.
The standard margin system for US retail accounts under Federal Reserve Regulation T. Calculates option margin using a fixed formula: typically 20% of underlying minus the OTM amount.
Why does Reg T Margin matter for premium sellers?
Reg T is predictable but conservative. A naked SPY put at $565 with SPY at $580 requires about $10,100 in margin. Portfolio margin would require roughly $3,500 for the same trade.
How does Reg T Margin work?
Federal Reserve Regulation T sets initial margin at 50% for stocks. For options, the formula varies: naked puts = 20% of underlying minus OTM amount (minimum varies). Credit spreads = max loss. Covered calls = no additional margin beyond the shares.
What are common mistakes with Reg T Margin?
Running out of buying power because you're using Reg T on undefined-risk trades. If you want to sell strangles or naked puts at scale, you need portfolio margin. Reg T is designed for defined-risk strategies and covered positions.
