Portfolio Margin is a method available for certain accounts for computing required margin for stock and option positions that is based on the risk of the position rather than the fixed percentages of Regulation T and strategy-based margin. This method uses theoretical pricing models to calculate the loss of a position at different price points above and below current stock or index price. The largest loss identified is the margin required of the position. The result is often lower margin requirements than would be calculated from the standard method.
Stocks, options, small cap broad-based indices, and large cap broad-based indices are all tested with a minimum +/- 15% price change. The range is divided into ten equidistant points, and the loss/gain on the position as a whole is calculated at each of the ten points (scenarios). Stress testing is done on a position’s implied volatility and the margin requirement will be the largest loss calculated on any given scenario. Thus, hedged positions may have lower requirements than non-hedged positions. However, positions that are concentrated will be evaluated using a greater range and thus the requirement on these positions will be greater in comparison to a non-concentrated position.
In the event a portfolio margin account falls below $100,000 Net Liquidating Value; the account holder will have to bring the account above this watermark or it will be removed from the portfolio margining system.
Portfolio Margin Minimum Requirements
- Each account must have an initial net liquidating value of at least $125,000
- Smaller accounts cannot be combined to meet the $125,000 requirement
- Available only to margin (non-IRA) accounts
- Each account must be approved to trade short, uncovered options
Important Information About Portfolio Margin
Use of portfolio margin involves unique and significant risks, including increased leverage, which increases the amount of potential loss, and shortened and stricter time frames for meeting deficiencies, which increase the risk of involuntary liquidation. Client, account, and position eligibility requirements exist, and approval is not guaranteed. Carefully read the Charles Schwab & Co. Guide to Margin and the Charles Schwab & Co. Margin Overview and Disclosure Statement for specific disclosures and more details.
Charles Schwab & Co. Guide to Margin
Charles Schwab & Co. Margin Overview and Disclosure Statement
It is the client’s obligation to evaluate the risks of portfolio margin when making investment decisions. Charles Schwab & Co. (Schwab) reserves the right at its sole discretion to decline a client the use of portfolio margin. In the event Schwab decides to terminate a client’s use of portfolio margin, the client’s account may be converted to the standard margin account. The conversion of a portfolio margin account to a margin account may require the liquidation of positions. Uncovered options strategies are only appropriate for traders with the highest risk tolerance, involve potential for unlimited risk, and are only allowed in margin account.