We don't need a song and dance so I edited your lengthy post. I post lots of trades in real time to ET, I challenge you to post just one.
Why do brokers allow reduced margin on high IV high beta stocks? That's one thing I really don't understand. I'm the first to admit that I'm no supertrader and I'll probably blow out my account sooner or later. Right now my main concern is that market IV is so low that even among the highest IV stocks there's not much premium worth selling. I'm thinking I need to develop a low IV strategy to deal with these times, or I just have to sit the market out...maybe wait and see if earnings season gives us an IV spike.
Just depends how your broker's risk management team views whether a stock deserves special/higher margin requirements. Often if a stock has a lot of public attention and is a little bubbly, they might raise margin requirements on them, e.g. TSLA. But some high betas can fly under the radar but otherwise generally move as much or more than TSLA on a given day. Mostly the brokers only care about protecting themselves. They don't care you lose money because they don't hold your hand. But they change margin requirement because they don't want to be left holding the bag on your behalf. Margin requirements can change overnight on any stock for any reason... so its always dangerous to leverage that much anyway. You're always on your brokers terms. In the dotcom era, some brokers changed margin requirements to 100% on many stocks overnight when volatility got bad, for example. Many people fell below margin compliance overnight. There are quite a few momos that don't have high initial or maintenance margin in some brokers so someone on a huge desire to leverage can probably binge sell premium on those momos. Well, if you're judging that comment based on the VIX. But remember VIX is a composition of the S&P. Just look at historical IV for a particular stock in question and you'll know whether the IV is high and worth being a seller. Sometimes IV hike for a reason because someone is doing a lot of buying because of some knowledge they have... you can be a seller and then be caught holding the bag. Often pre-earnings IV hike and sometimes theres a play there. When I sell premium I look at it from the perspective of whether I want to be long or short a name. Instead of doing it immediately with equity, I can sell options a little further out for a better margin of error. If trade goes against me and I am assigned, well I lost less than if I had just gone and went long or short the equity at that point in time. No matter what you still need to have a bull/bear thesis.
BTW, like someone said, just do a stress test on your portfolio. See what a systematic drawdown of all your positions by a certain % and what that does to your net liq. The problem with premium selling is limited gain and high or unlimited (naked call selling) loss potential. So your stress test will often show -30% taking a huge hit to your portfolio but +30% barely doing anything. But thats the nature of this kinda trade (selling premium).
butterfacetrader .... Are you too chicken to accept the challenge? You should change your ET name to chickenshittrader.
My comment is based on VIX. With the overall low IV across the market it seems to me that there are far fewer stocks with IV well above their HV. For example, back in February with the VIX around 20 I was more diversified than I am now.
LOL... this guy is funny... Buddy, remember what I told you before? Take those meds. You have something to prove here. I don't. Unlike you, I don't care. Nice GOOGL put selling trade that caused liquidation of the 100K account BTW. Top notch stuff. Teach us more.
VIX applies only to the S&P. If you are selling S&P options premium then that applies to you. If you are selling options on single stocks within the S&P500 then that sorta kinda applies to you but not really. Since you're doing single stocks, I would probably just be looking at the historical IV values of that particular name instead and judge how the volatility is like for that stock historically when whether premium is high or low. VIX can be low but a single S&P stock it can have high historic IV, again because probably somebody knows something and is buying options heavily.
If you didn't care you wouldn't be posting multiple times stalking me all over the board. You are obsessed with me. That wasn't a trade suggestion, it was an aggressive GOOGL naked put example. If it was a real trade maximum loss would be about $4310.00, but it all depends on the broker. Read the post again: http://www.elitetrader.com/vb/showpost.php?p=3994610&postcount=45 The purpose of the example was to get dialogue going on actual trades.
Now this is why I like to post real quotes as examples and see how they progress, otherwise you just get posts with unrealistic claims of high monthly returns. That INSM trade was on shaky ground from the beginning and it did make it to the July 18 expiry. But it could have imploded at anytime like it did today. IMO .... Trades like that are not sustainable. 1-month chart INSM