BROKER WANTED: Least Margin Maintenance Requirement On Short Options

Discussion in 'Retail Brokers' started by mydann, Aug 30, 2006.

  1. mydann


    Hi all,

    I have an account in AmeriTrade which has margin requirement of about 30%+ of underlying when shorting the options. I am thinking about moving to IB which margin requirement is about 20%+ of underlying.

    Is there anyone knowing brokers have less margin maintenance requirement?

    My point is that making $200 a year by investing $1000 is good. But it wouldn't be good at all while you have $10000 sitting there for nothing because margin maintenance requirement. It means $11000 for $200 a year. No one will do it.

  2. I recommend you analyze your risk profile. Wha happens when the market moves against you? What's your maximum peak-to-peak drawdown? The brokers need to be able to cover this with your margin.

  3. just21


    Sell options on futures with IB on ES, STX50, Dax and k200 (kospi). They use span and risk based margining systems that are a lot more generous.
  4. mydann


    Yes, I know the risk of big wave. We are trading the risk. :)

    I just need a broker to help me to gain (hopefully) or lose more faster. :)

    I have managed the option shorting very well so far by controlling the risk. But the margin requirement leveled all my hard efforts.

  5. Look up what Reg-T minimums are for naked options. You won't find a broker than can offer less than the minimums.

    In my experience IB usually goes with minimums with the exception of when their software hasn't been able to handle more complicated positions such as unbalanced butterflies etc.

    Brokers specializing in options e.g. do a better job with these scenarios.

    If you're dealing with futures or commodities options, SPAN is the applicable margining system. SPAN, unlike Reg-T is portfolio risk-based which will generally give you a better return on investment over Reg-T for naked option writing. The caveat is of course that it can lead to overleveraging and margin calls etc. If you plan to massively leverage (bad idea) then you'd want to choose a broker that doesn't automatically liquidate your positions in margin call situations and gives you a grace period etc. IB does not qualify. At any rate, this approach is not recommended for most but I'm outlining the possibilities.

    Good luck!

    You may wish to read Fooled by Randomness by Nassim Taleb and also read the following thread to perhaps balance your thoughts and opinions on writing naked options:

    Writing Options for a Living

  6. With that amount of risk tolerance, you will lose your shirt.
  7. mydann


    The risk management is done for the $1000 invested in the naked short options, not the $10000 margin requirement.

    I don't see the difference of losing my shirt while having $5000 sit in my account instead of $10000 if I manage the $1000 REAL investment well.

    That's why I am going to move from AmeriTrade (30%+) to IB (20%+), it will be 30% faster of losing or gaining. It does not introduce extra risk as my understanding.

    I have read the Reg-T for named short options, it looks like the IB is very close to it. IOW, it would be harder to be lower.