Recently I was surprised when think-or-swim held back more in option buying power than I had expected. I had just entered an MNX double-diagonal trade.

Imagine my chagrin when I had to call TOS and ask, what's up? Preteens were still dancing to Oingo Boingo's songs when I first began calculating how much money was going to be withheld for a particular trade. The guy I spoke to at the trading desk was probably one of those preteens back then.

Here's the problem. I'd expected the buying-power effect to be the distance between the sold and long strikes minus the credit I had received plus commissions. I had three contracts with sold and long strikes 7.5 points apart. I'd received $0.67 in credit and paid $18.00 in commissions. So, I had expected the buying-power effect to be as follows: (3 x $7.5 x 100 multiplier) - (3 x $0.67 x 100 multiplier) - $18 = $2067. Instead, the buying-power effect was the full $2,250 that represented the 7.5-point distance between the sold and long calls for the three contracts. No deduction was made for the credit I'd received for the trade. Nor were commissions added to the buying-power effect.

When I previewed my order and clicked through to "View impact on buying power" on my primary brokerage, my option buying power would have been reduced by the expected $2250 minus the credit I received plus the commissions and fees I paid, that $2067.

That might seem kind of complicated. Let's take a specific example that might be more familiar: the iron butterfly, which is essentially an iron condor with both the sold put and sold call at the same strike. For those who are not used to complex options trades, the sold call and put are then hedged with a further-out long call and put in this strategy. Ideally, the long call and put will be placed equal distances from the sold call and put. Iron butterflies bring in a credit.

I placed an OEX NOV 450/480/480/510 iron butterfly on October 30 for an $18.15 credit. The wings were 30 points away from the body. Think-or-swim, where the trade was placed, showed the buying power effect at $3,000. Again, the buying-power effect wasn't reduced by the credit I'd taken in. Nor were the commissions added to the buying-power effect.

If I had placed that trade on BrokersXpress and checked the impact on buying power, I would have received a different number. When I clicked through to "View impact on buying power," BrokersXpress told me that the trade would reduce my buying power by $1244.80. When previewing that order for the same iron butterfly for the same $18.15 credit, I see that the estimated commission was $59.80.

Let's total the numbers. I would have received $1815 in credit ($18.15 x 100) and would have paid $59.80 in commissions. The wings were 30 points wide. The resultant calculation for the total margin needed would have been as follows: ($30 x 100 x 1 contract) - $1815 + $59.80 = $1244.80. This was the number I expected to see on TOS. Instead, $3,000 showed up as the buying-power effect.

Yikes, I thought. I'd opened the TOS account for the purpose of testing small one-to-three-lot trades. My primary brokerage's commission schedule is great with one exception. A minimum fee for trades made it nearly impossible to test trades in small lots and expect to make a profit. Commissions for a one-lot trade were the same as for a ten-lot trade. However, if TOS was holding more in reserve for each trade than I anticipated, I might not have enough money left for the adjustments I wanted to try if the need for them arose.

However, remember that old associative property in mathematics? Remember how a + b - c = a - c + b? It turns out that my problem amounted to nothing more than nomenclature and that associative property. My main brokerage made the $3,000 - $1815 + commission calculation all in one fell swoop and then deducted it from the cash I had available for option trading. TOS does it differently. TOS added the credit I'd taken in for the iron butterfly, minus commissions, to the cash I had available, showing it as a cash infusion, just as if I'd deposited money into the account. Then TOS shows the full $3,000 as the buying-power effect of that specific trade. However, when I click on "Option Buying Power" on the "Account Info" box, the net result is the same.

Does this associative-property problem make a difference? Is it just nomenclature? Maybe, although I do have one worry. What if that testing account had $2,000 left in option buying power, and I wanted to sell another OEX iron butterfly with 30-point wings? Does TOS simultaneously add the credit to the cash amount and deduct the $3,000 in buying power the trade requires or would it not allow the trade since the account didn't have the $3,000 it will always show as the buying-power effect? I didn't ask that question because I didn't intend to let that problem arise, always leaving plenty of money in my accounts for adjustments.

However, these are simplistic examples that really didn't cause big problems. The point is that not all brokerages handle these matters the same way. For example, I've heard but haven't verified that a few brokerages still require margin held on both sides of an iron condor, meaning that the trader at that brokerage would have double the amount withheld that I do at my brokerage. That would reduce the return on one's investment and would also limit the number of original trades and adjustments one might enter. I knew TOS handled iron condors as my main brokerage did, but I didn't even think to ask about this other issue.

If you're changing brokers or just opening a small account somewhere for testing ideas, as I did, ask. Ask what would happen if you wanted to trade that butterfly and had only $2,000 in reserve but expected to take in $1800 or above in credit.