What is portfolio margin?
In one line: Portfolio margin is a risk-based way of setting margin that tests how a whole account would do across a range of price moves, instead of using a fixed formula per position.
How it works
Standard margin uses a fixed formula for each position. Portfolio margin looks at the whole account at once. It asks: if prices moved a set amount up or down, what's the worst loss? The requirement is set near that worst case.
For a single stock, the test range is often about 15% up and down. Broad index products are usually tested with smaller moves. Brokers can add their own stricter tests on top.
Portfolio margin is for larger, experienced accounts. Many US brokers ask for a high minimum balance, often six figures, plus extra approval. Check your broker's current help pages for its rules.
An example (hypothetical)
XYZ is at $50 (an illustration, not a trade idea). You sell a $45 put for $1.00.
- Standard margin might hold about $600.
- Portfolio margin tests a 15% drop, to $42.50. Say the put would then be worth about $3.50, a $250 loss. The requirement might sit near $250.
Same trade, less collateral. So you could sell more puts with the same money. Here's what that does when XYZ falls far past the test range on bad news:
| XYZ at expiry | 2 puts, cash-secured ($9,000 set aside) | 10 puts, portfolio margin |
|---|---|---|
| $50 | +$200 | +$1,000 |
| $42 | −$400 | −$2,000 |
| $30 | −$2,800 | −$14,000 |
A 40% drop was outside the 15% test. The requirement looked small because it only priced a 15% move. And as the stock falls, the test runs again at the new price, so the requirement can climb fast, right when cash is hardest to find. A math example, not a promise.
Why it matters for sellers
Portfolio margin doesn't change what a trade can lose. It changes how many trades you can fit. That's leverage. For option sellers, more leverage means one gap, like a Binary event, can do far more damage than the account was sized for.
The wheel strategy doesn't need it. The wheel works on the cash you'd use to buy the shares. If you do have portfolio margin, a simple rule is to size each put as if it were cash-secured anyway.
Accounts like TFSAs, RRSPs and IRAs don't allow it.
Questions
Who can get portfolio margin?
Usually accounts with a high balance and options experience, after extra approval. The minimum and the rules vary by broker.
Can portfolio margin requirements jump suddenly?
Yes. They're worked out again as prices and volatility change, and brokers can widen their tests on a stock at any time.
Is portfolio margin cheaper?
It usually holds less collateral. Interest still applies if you borrow. Less collateral is not less risk.
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