Margin requirement when trading a long butterfly
Applies only to Margin Accounts
The BP effect of a long butterfly is the net cost of the spread (cost of the long options - the credit of the short options).
Example of buying a long butterfly in a margin account
Buy to open 4 Mar 40 calls at $12.50
Sell to open 8 Mar 50 calls at $6.00
Buy to open 4 Mar 60 calls at $1.50
The BP effect for this position is $800 [($12.50 x 4 contracts) + ($1.50 x 4 contracts) - ($6.00 x 8 contracts)].