Are option contracts subject to mark to market rules
If I sell a covered call, on stock I own 100%, there is no risk of a margin call. The stock goes to zero, I'm still not ask to send in more money. But, if bought on margin, margin rules apply.  A naked put would require you to be able to buy the stock if put to you. As the price of the stock drops, you still need to be able to buy it at the put strike price.  Mark to market is just an expression describing how your positions are considered each day.
"For sake of simplicity, say the Euro is trading at $1.25. You have leveraged control of $100,000 given the 100x leverage. If you are bullish on the Euro, you are long 80,000 euros. For every 1% it rises, you gain $1000. If it drops by the same 1%, you are wiped out, you lost your $1000. With the contracts I am familiar with, there is a minimum margin, and your account is ""marked to market"" each night. If your positive balance drops too low, you get the margin call. It's a zero sum game, for every dollar you make, there's a guy on the other side of the trade. Odds are he's doing this full time and is smarter than you." TOCOM Crude is a cash-settled blend of Oman and Dubai crude oil, both quoted in USD.  The daily settlement price is mark to market, but the final settlement price is based on reported prices from Dubai and Oman (or calculated in some cases with a known procedure), averaged and then converted to Yen using monthly average exchange rates as published by a reference bank (see Detailed Rules) You're trying to go all the way back and unfuddle quotes into a blend of USD-quoted oils.  The correct procedure here would be to go with the Oman and Dubai prices in the first place (unless you're trying to arbitrage the TOCOM market). As to why they do it this way?  It's a service.  TOCOM takes on all the challenges to provide customers with a steady and consistent way of trading cash-oil.  For physical oil, all you'd have to do is buy the blend on Dubai's and Oman's spot market.  You trust TOCOM's price finding process, i.e. there will be no discrepancies between your TOCOM cash-oil and the Middle East physical oil. Edit: As to why Japan isn't buying WTI directly:  There's a considerable cost of carry.  WTI delivery location is Cushing, OK; there are pipelines but it's still a logistics act to get the oil to a port on the West Coast and then have it shipped to Japan.  Dubai's delivery is at Jebel Ali (Persian Gulf), Omani crude can be shipped straight from Mina Al Fahal.  Not only is it a shorter trip but also there are more shipping companies specialised in oil deliveries to the Asian hotspots. Why they pay in USD?  Persian oil is highly sought after in nearly all of Asia's economies but there's little other exported goods from there.  So naturally the market for currency crosses (AEDJPY, OMRJPY, AEDINR, OMRINR, etc.) is not that liquid.  At least not as liquid as to make buying Persian oil a smooth deal.  Anyway, both Dubai and Oman chose to follow Western practice to quote their contracts in USD and (maybe because of liquidity concerns) also to accept USD for payment only. "As others have alluded to but haven't said due to the lack of reputation points to spare, you can take advantage of oil prices by leveraging up and using as much credit and margin as the banks and brokerages (respectively) will lend you. People assume that the correct answer on this forum has to masquerade as conservative financial advice, and this is not advice nor conservative. Futures contracts are readily available, but they are expensive to obtain (like a minimum entry of $4,450). But if this expense is no such object to you then you can then obtain this contract which is actually worth 20x that and experience the price appreciation and depreciation of the whole contract. The concept is similar to a downpayment on a mortgage. You assume ""rock bottom"" oil prices, but fortunately for you, futures contracts will allow you to quickly change your bets from future price appreciation and allow you to speculate on future price depreciation. So although the union workers will be protesting full time after the drilling company lays them off, you will still be getting wealthier. Long Options. These are the best. The difference with options, amongst other speculation products, is that options require the least amount of capital risk for the greatest reward. With futures, or with trading shares of an ETF (especially on margin), you have to put up a lot of capital, and if the market does not go your desired direction, then will lose a lot. And on margin products you can lose more than you put in. Being long options does not come with these dilemmas. A long march 2015 call option on USO ETF can currently be bought for less than $200 of actual cash (ie. the trading quote will be less than $2.00, but this will cost you less than $200), and will be worth $1000 on a very modest rebound in prices. The most you can lose is the $200 for the contract. Compared to $4450 on the futures, or $100,000 (that you don't have) in the futures market if oil really moves against you, or compared to whatever large amount of cash needed to actually buy shares of an ETF needed to make any decent return. These are the most lucrative (and fun and exhilarating and ) ways to take advantage of rock bottom oil prices, as an individual." A Section 1256 contract is any: Non-equity options include debt options, commodity futures options, currency options, and broad-based stock index options. A broad-based stock index is based upon the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). 60% of the capital gain or loss from Section 1256 Contracts is deemed to be long-term capital gain or loss and 40% is deemed to be short-term capital gain or loss. What this means is a more favorable tax treatment of 60% of your gains. http://www.tradelogsoftware.com/tax-topics/futures/ It's a really wierd rule (arbitraty 60% designation, so broad, etc), but section 1256 contracts get preferential tax treatment and that's what Buffett's talking about. "You're mostly correct, although I think you're missing something essential about no-arbitrage versus an arbitrage argument.  Black-Scholes makes an arbitrage argument, which is that the value of an option should be the same as any portfolio that has identical cash flows, and this is generally a sound argument.  Notice, however, that BS is ultimately an equilibrium model: it tells you the ""correct"" price of an option if the assumptions of BS hold, and doesn't necessarily match observed market prices.  A no-arbitrage condition or model deliberately incorporates observed prices (or yields, or whatever) into the model, so that there cannot be an arbitrage opportunity implied by the model.  This comes up a lot in term structure of interest rate problems, where equilibrium models like Vasicek or Cox-Ingersoll-Ross won't perfectly reproduce the current, observed term structure, and so imply an arbitrage opportunity.  No-arbitrage models like Hull-White specifically match the model's term structure to observed yields/prices, so that there is no arbitrage opportunity between the observed term structure and your model of it.  It's important to note that this will still allow for arbitrage involving bonds that are *not* part of the observed term structure.  As for equivalent martingale measures, you might think about it more generally.  The process involves changing the probability distribution from the actual (which is hard to use for pricing) to a different one that's easier to use but will result in the same prices; this is nearly always a risk-neutral probability.  You can think of equivalent martingale  pricing as asking, ""how would this security behave, and be priced, in a world that is completely risk neutral"", and then making an argument that the prices are in fact equivalent.  EDIT: grammar" "First, your question contains a couple of false premises: Options in the U.S. do not trade on the NYSE, which is a stock exchange.  You must have been looking at a listing from an options exchange. There are a handful of options exchanges in the U.S., and while two of these have ""NYSE"" in the name, referring to ""NYSE"" by itself still refers to the stock exchange. Companies typically don't decide themselves whether options will trade for their stock.  The exchange and other market participants (market makers) decide whether to create a market for them. The Toronto Stock Exchange (TSX) is also a stock exchange.  It doesn't list any options.  If you want to see Canadian-listed options on equities, you're looking in the wrong place. Next, yes, RY does have listed options in Canada. Here are some.  Did you know about the Montreal Exchange (MX)?  The MX is part of the TMX Group, which owns both the Toronto Stock Exchange (TSX) and the Montreal Exchange. You'll find lots of Canadian equity and index options trading at the MX.  If you have an options trading account with a decent Canadian broker, you should have access to trade options at the MX. Finally, even considering the existence of the MX, you'll still find that a lot of Canadian companies don't have any options listed.  Simply: smaller and/or less liquid stocks don't have enough demand for options, so the options exchange & market makers don't offer any. It isn't cost-effective for them to create a market where there will be very few participants." Yes, Regulation T is specified as the equity percentage of assets. So, yes, one can buy double the amount of equity in initial buying power but no more.  A broker shouldn't even permit purchases that would violate margin regulation. Maintenance margin is at 25%, so equity must remain above 25% of the total or the brokerage will force liquidations. "This is the sad state of US stock markets and Regulation T. Yes, while options have cleared & settled for t+1 (trade +1 day) for years and now actually clear ""instantly"" on some exchanges, stocks still clear & settle in t+3.  There really is no excuse for it. If you are in a margin account, regulations permit the trading of unsettled funds without affecting margin requirements, so your funds in effect are available immediately after trading but aren't considered margin loans.  Some strict brokers will even restrict the amount of uncleared margin funds you can trade with (Scottrade used to be hyper safe and was the only online discount broker that did this years ago); others will allow you to withdraw a large percentage of your funds immediately (I think E*Trade lets you withdraw up to 90% of unsettled funds immediately). If you are in a cash account, you are authorized to buy with unsettled funds, but you can't sell purchases made on unsettled funds until such funds clear, or you'll be barred for 90 days from trading as your letter threatened; besides, most brokers don't allow this.  You certainly aren't allowed to withdraw unsettled funds (by your broker) in such an account as it would technically constitute a loan for which you aren't even liable since you've agreed to no loan contract, a margin agreement.  I can't be sure if that actually violates Reg T, but when I am, I'll edit. While it is true that all marketable options are cleared through one central entity, the Options Clearing Corporation, with stocks, clearing & settling still occurs between brokers, netting their transactions between each other electronically. All financial products could clear & settle immediately imo, and I'd rather not start a firestorm by giving my opinion why not. Don't even get me started on the bond market... As to the actual process, it's called ""clearing & settling"". The general process (which can generally be applied to all financial instruments from cash deposits to derivatives trading) is: The reason why all of the old financial companies were grouped on Wall St. is because they'd have runners physically carting all of the certificates from building to building.  Then, they discovered netting so slowed down the process to balance the accounts and only cart the net amounts of certificates they owed each other.  This is how we get the term ""bankers hours"" where financial firms would close to the public early to account for the days trading.  While this is all really done instantly behind your back at your broker, they've conveniently kept the short hours."