Standard margin accounts, also known as Reg-T margin accounts, are governed by FINRA's Regulation-T margining methodology, which bases its requirements on a fixed percentage, strategy-based system. In certain scenarios, tastyworks may require higher margin requirements for concentrated positions. A concentrated position occurs when specific securities represent a large percentage of the account's overall value.
Margin Concentration Logic
When you trade a small handful of symbols, and your exposure concentrates on one underlying, your margin requirements may increase due to position concentration. There are two important figures to understand when it comes to concentration, a position's EPR and PNR. The Expected Price Range (EPR) represents tastyworks' best estimate of a given security's price change over one day. It is expressed as a percentage of the current security price and comprises a lower and upper bound. (e.g., percentage up and percentage down). Point of No Return (PNR) is defined as the point at which an account takes on risk equal to 50% of the value of the account or $50,000, whichever is lesser. If the PNR is inside the EPR, the higher EPR requirement is applied.
Simply put, a position will become concentrated when the EPR requirements exceed 150% of your account value or $50,000 plus your account value, whichever is less. For example, a trader has an account value of $40,000, the underlying XYZ’s EPR percentage is 30%, and they wish to sell naked puts on that symbol. The position will be concentrated if the EPR requirement for selling those puts exceeds $60,000 ($40,000 * 1.50). On the other hand, if the EPR requirement is below $60,000, then the regular base margin requirements will be applied.
For example, the fixed percentage margin requirement for a non-concentrated uncovered option is the greater of the following calculations:
- 20% of the underlying price minus the out-of-the-money amount plus the option premium multiplied by the number of contracts and contract multiplier (generally 100).
- 10% of the underlying price (for calls, 10% of the strike price for puts) plus the option premium multiplied by the number of contracts and contract multiplier (generally 100).
Base requirements are subject to change for specific symbols, and may be greater than 20%/10%
In contrast, if a position is concentrated, the EPR percentage will replace the 20%/10% listed above. For example, if the EPR is 35%, the margin requirement calculations become the following:
- 35% of the underlying price minus the out-of-the-money amount plus the option premium
- 35% of the underlying price for calls, (10% of the strike price for puts) plus the option premium
EPRs can be adjusted by the tastyworks margin/risk team at any time. EPRs and PNRs are shown in the Cap Req pop-up below: