advantages portfolio margin offer someone who trades mainly credit vertical spreads

Discussion in 'Options' started by nixodian, Aug 22, 2010.

  1. nixodian

    nixodian

    what advantage would portfolio margin offer someone who trades mainly credit vertical spreads , eg iron condors?
    eg if in a credit vertical spread, and sold another further OTM credit vertical spread would the margin requirement not apply to that?

    please give egs of advantages portfolio margin would have to a flexible, willing to use other strategies, mainly option credit vertical spread trader
    looking forward to your response,

    thanks in advance
     
  2. some strategies are ridiculously prohibitive with ordinary margin, e.g. reverse calendars (the back month is considered a naked short for margin purposes). if you're mostly doing verticals and condors, you're not going to see all that much benefit, assuming you are using proper risk management in the first place. sounds like you are trying to decide whether or not to raise your stake to the PM minimum at your broker. I wouldn't worry too much about it if, as you say, you engage in limited risk strategies. focus on being profitable, not on gearing up.

    here's a chart of some of the margin differences for PM:

    http://www.cboe.com/micro/margin/margin_req_examples.pdf
     
  3. MTE

    MTE

    The margin under PM on an iron condor is less than 1/3 that of the Reg T., so there is quite a bit of benefit. I do agree though that a person should not leverage up too much.
     
  4. nixodian

    nixodian

    Thanks for response weewilly and MTE.
    MTE, are you saying margin requirement for iron condor is a 1/3 of what it is for a non PM account? l tend to leg into my iron condors, so the benefit would be realised once the full iron condor is formed on the call and put side right?

    how about margin benefits for writing further out the money credit spreads, on top of the ones already present? would margin still be required for them under PM?
     
  5. MTE

    MTE

    You can see the margin comparison in the link provided by weewilly. Also you can see what the margin requirement will be under PM for any position you like by visiting this page and clicking on "Launch the online position editor" button. towards the bottom of the page. It's not easy to find the correct options, especially index options, but with a little effort you can see exactly what the margin requirement is for a position you are asking about.
     
  6. the two most commonly used retail brokers that offer PM are IB and TOS, and both have stricter PM calculations than CBOE PM (which is similar to span). instead of discussing PM in general, you need to create a demo account at one of these brokers and test for yourself.

    i would not rely on the CBOE tools that others here point you to. they aren't accurate unless you're trading es options
     
  7. l tend to leg into my iron condors, so the benefit would be realised once the full iron condor is formed on the call and put side right?

    Yes, the total margin for both verticals (the condor) will be less than the margin for the "riskiest" vertical on its own. PM recognizes that you don't have two-sided risk (either vertical is at risk, but not both).

    how about margin benefits for writing further out the money credit spreads, on top of the ones already present? would margin still be required for them under PM?

    Yes, more margin required. Generally, the further away from the market, the less margin required, subject to broker minimums.
     
  8. uptickk

    uptickk

    Great information here. Thanks MTE, blackjack007 and weewilly