Option buying power is the amount of money or collateral available in your brokerage account to open options trades. It can differ from your total account balance or stock buying power because the required amount depends on your strategy, account type, options approval level, settlement status and broker rules.
Option Buying Power at a Glance
| Trade Type | What Usually Reduces Your Option Buying Power? |
|---|---|
| Buy a call or put | The full option premium multiplied by 100 shares per standard contract |
| Sell a covered call | 100 shares of the underlying stock are reserved |
| Sell a cash-secured put | Cash is reserved to purchase 100 shares at the strike price |
| Buy a debit spread | The net debit paid for the spread |
| Sell a credit spread | Cash is reserved for the spread's maximum potential loss |
| Sell an uncovered option | A broker-calculated margin requirement, which can be substantial |
A standard equity options contract generally represents 100 shares. Option premiums are quoted on a per-share basis.
How Does Option Buying Power Work When Buying Calls or Puts?
When you buy a call or put, your broker normally requires you to pay the full premium. The amount required is:
Option premium × 100 × number of contracts
For example:
- Call premium: $2.50
- Number of contracts: 3
- Cost: $2.50 × 100 × 3 = $750
Your option buying power would generally fall by about $750, plus any applicable fees.
Buying a call or put usually does not require you to borrow money from the broker. The maximum loss on a long option is generally the premium paid, although the option can expire worthless.
Is Option Buying Power the Same as Cash Balance?
No. Cash balance is the amount of cash in your account, while option buying power is the amount currently available for an options transaction.
Your option buying power may be lower than your cash balance when money is:
- Reserved as collateral for existing short options
- Committed to open orders
- Unsettled after a recent sale
- Needed to support a margin position
- Restricted by your broker's options approval level
- Affected by changes in portfolio value or maintenance requirements
Robinhood defines buying power as the amount available to purchase stocks, options and other eligible investments. Fidelity calculates buying power using available cash and, where applicable, the loan value of marginable securities.
How Much Buying Power Does Selling an Option Use?
Selling an option can use more buying power than buying one because the seller may have to fulfill the contract.
Covered Call
A covered call requires the underlying shares. Selling one call normally requires 100 shares of the stock per contract to remain available as cover.
Cash-Secured Put
A cash-secured put requires enough cash to buy the shares if assignment occurs.
For example, selling one $50 put generally requires about:
$50 × 100 shares = $5,000
The broker reserves that cash because assignment could require you to buy 100 shares at the $50 strike price.
Credit Spread
For a defined-risk credit spread, the broker typically reserves the spread's theoretical maximum loss. A wider spread usually requires more buying power, while the premium received reduces the net risk.
Uncovered or Naked Option
An uncovered option is not fully secured by stock or cash. The broker calculates a margin requirement based on the option, the underlying security, volatility and applicable regulatory rules.
These requirements can change quickly. Losses on some uncovered strategies can be very large or theoretically unlimited. FINRA rules establish minimum margin requirements, but brokers may impose stricter requirements.
Why Is My Option Buying Power Lower Than Expected?
Several account conditions can reduce your option buying power:
- You have open options orders. Pending orders can reserve cash or collateral before execution.
- You recently sold stocks or options. In a cash account, the proceeds may need to settle before they can be reused. U.S. stocks and options generally settle on a T+1 schedule, although account settings and broker policies can affect availability.
- You sold a short option. The broker may hold cash or securities as collateral.
- Your account value changed. Margin buying power can fall when securities decline in value or become more volatile.
- You received an assignment. Assignment can create a stock position or account obligation that reduces available buying power.
- Your account lacks the required options approval. Brokers restrict strategies according to their options trading levels and their assessment of your experience and financial situation.
- A deposit has not fully cleared. Some brokers provide temporary buying power for pending deposits but restrict its use for options trading.
Option Buying Power Versus Margin Buying Power
These terms are related but not identical:
- Option buying power shows how much capacity you have for options transactions.
- Margin buying power reflects how much you may be able to borrow or use against eligible securities.
- Cash available shows money that can be used without borrowing, subject to settlement and account restrictions.
A margin account may show more buying power than the cash deposited because the broker may extend credit against eligible securities. Margin buying power can change as the value and risk of the portfolio change. Borrowing can also create interest charges and margin-call risk.
Does Buying Power Equal the Amount You Can Safely Trade?
No. Buying power is a broker limit, not a recommended position size.
Buying an option may use only a small amount of buying power, but the position can still lose 100% of its premium. Leverage also means that a relatively small movement in the underlying stock can produce a much larger percentage gain or loss in the option.
Before placing an order, check:
- The total premium or collateral requirement
- The option's expiration date
- The bid-ask spread
- The maximum possible loss
- Whether exercise or assignment could create a stock position
- Whether sufficient buying power remains after the trade
Bottom Line
Check the option buying power shown in your broker's order preview before submitting a trade. That figure reflects the account's current cash, collateral, open orders, settlement status and applicable broker rules. The amount can change, so the order preview is the best place to confirm what the trade will require.