Yup, the only scenarios are locks and boxes (arbitrage). In other words, conversions and reversals that carry no risk. Any position that does not fall into that category converges. I'm always open to people proving me wrong. Lay out a trade and we'll prove it mathematically. Also, please take equity into your equation. In other words, If I buy 100 straddles in a PMA account and JBO, my margin will be 50% higher in a PMA account (37.50 per contract vs 25.00) but our equity will be dropping the same through theta. These positions also converge through equity depletion.
Yes. However PM is MTM. It means the daily change of PM of holding a stock with a vol of 70 is a lot higher than that of holding a stock with 12 vol. An understanding of how PM changes with your holdings is the essential part of taking advantage of the leverage without significant increase in risk, IMHO. Without understanding this, you will get a margin call everyday if you try to maximize your leverage using PM.
What about short ops. Will the haircut margin converge to regt as we approach expiry even if the ops stay otm?
I am trying to understand the details of PM to avoid constant margin calls you described, so I posted a thread on the options forum asking if anyone knew the PM formula but there were no replies. Do you know the formula that OCC uses? They didn't post it on their website.
I was thinking, any short position or credit spread whereby the underyling moves in your favor, would not cause the PM haircut to converge to reg-T. Or, a neutral position such as short strangle or iron condor, whereby the underlying does not move or where the option loses volatility. There're quite a few situations that wouldn't converge to reg-T
I don't think if one-fits-all formula for short/unhedged options exists. It probably will be per broker. You have to use THEIR particular formula. IMO , broker should create alert module where user can enter criteria like " alert when margins...%...within..." Well , only few weeks to go now , we shell see
pm = the max loss you will have within 15% change of the stocks. Just write a simple program to find out the max loss you will have within 15% movement.
That formula is based on options where you are long or short the underlying (i.e. covered calls), so it will not represent your PM with every strategy. It also does not take into account the possibility of merging to Reg-T as has been discussed. I find it hard to believe that the larger brokers have not posted some sort of public discussion or Q&A on this. The closest I found was a comment in the OptionsExpress website stating that they will hold a webinar to discuss the topic. Does anyone know whether this has been held or whether this can be accessed by non-OptionsExpress traders?