When you sell an option you take on an obligation, so your broker and the exchange require margin as a guarantee. Buyers pay the premium in full and need no margin.
How margin is set
Exchanges calculate margin based on how much a position could lose in a bad day, plus an extra buffer. The exact method and rates are set by the exchange and regulator and change over time.
Why it can rise suddenly
- When volatility jumps, margin requirements usually rise.
- As a short option moves into the money, the margin needed grows.
- Brokers can ask for more than the exchange minimum.
Staying safe
Do not use all your available margin. Keep a cash buffer of at least a third, prefer spreads (which usually need much less margin than naked short options), and know what you will do if margin rises before you are forced to act.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.