How Do ‘Margin Calls’ Function in the Context of an Options Contract with an Institutional Counterparty?

A margin call occurs when the value of the collateral posted falls below the required maintenance margin level, usually due to adverse market movements. The counterparty is then required to immediately post additional collateral (variation margin) to bring the account back up to the required level.

Failure to meet a margin call can lead to the forced liquidation of the options position by the broker or CCP.