Vertical spreads
What is the Buying Power Reduction (BPR) formula for a standard equity vertical credit spread?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Buying power reduction for a standard equity vertical credit spread is typically calculated as the difference between the strike prices multiplied by 100 per contract, minus the net credit received, representing the maximum possible loss the broker must collateralize.
How it works
This formula applies broadly to defined-risk spreads since the long option caps the loss at a known level, unlike undefined-risk strategies that require more complex margin calculations.
An example
A $5-wide credit spread sold for $1.50 would typically require buying power of about $350 per contract, calculated as $500 minus $150.
Risk & limitations
OIC notes exact margin requirements can vary slightly by broker and may be subject to firm-specific house margin rules beyond regulatory minimums.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.