PM kicked in this morning 4/11 in my IB account. I requested it back on 4/3. When it kicked in this morning my max Leverage when to 4.5 (I define max Leverage as: (remaining buying power + gross position value)/net liquidation value I exclusively hold closed-end funds in the account, so I guess they are classified as "small cap stocks" which might explain why I'm seeing less additional BP than some others are quoting. I think this new leverage is great, but I'm a little annoyed by the fact that it is not predictable. I know IB offers a demo, but I would prefer a formula. I understand that any "formula" would really be a 100+ lines long and would require volatility inputs an correlation inputs and a bunch of other stuff ... but still, that would nice. I'm curious what happens to my new Leverage under extreme market conditions. What if the dow drops 100 pts during 20 min in the middle of the day. Does IB's "system" decide to reduce my PM buying power because market volatility is temporarily high? If so, this could cause massive liquidation in my account. This is the kind of question that can't be tested with IB's demo, and it does have me a bit concerned.
Unfortunately, there is no any formula even 100+ line long. It is not driven by formulas. On the bright side, your margin should not change drastically during the day. It is a risk margin now and by nature it is a requirement to cover possible one day loss. Of course, you better watch if you are close to limits.
I believe your statement is a little misleading, please correct me if I am mistaken. Your margin may not change drastically during the day, but it can change drastically over the next few days. IB's requirements include a 5 standard deviation move in addition to the standard % move listed on their website. As an example, before the February sell off a 5 standard deviation move in the SPX worked out to only 5% or so, therefore the regular margin of +6% and -8% would apply. Subsequent to the large down move 5 standard deviations worked out to over 10%, so you started with margin requirements of +6%/-8% and then you have a +10%/-10% requirement. Going from having to cover +6% to a +10% move can result in a very significant change to your margin requirement.
I agree with your statements. I just tried to answer, "What if the dow drops 100 pts during 20 min in the middle of the day..."
So how are new margins working for you guys so far ( IB users) ? My margins had a zero change/increase this week , but I currently have all long synthetics only. What about other types of positions with one week week before exp ?
A number people have addressed the same concern, namely that the formula IB uses is not well-understood and we traders are playing a guessing game. IB needs to introduce a what-if tool whereby the user can input values for volatility and stocks/indices (such as SPX), and see what it does to their margin. This tool would benefit IB, too, because without it, people like me remain very conservative in my use of margin. In other words, I do not spend as much on commissions as I would if I knew how to safely use my margin its max potential. All I know so far is that IB's formula is far stricter that TIMS, but to what extent I don't know.
GOOG long synthetic 470 straddle for May, 20x. $3,000 in overnight req via IB PM account. Vegas marked at 15% against and daily thetas.
https://cpm.theocc.com/tims_online.htm has been updated, they have taken out the index options and replaced it with stocks. What are the liquid index options that now use PM? Are they all floor traded?
We put ALL OCC options under PM. This calculator just gives you an idea. Each company implements it differently.
To reduce b/a slippage I went with long synthetic ( atm puts + long shares) instead of natural straddle. Let's say 20 puts + 1000 shares instead of 20 straddles , to have it DN. Its worked well because I saved X $ by exiting only 20 contracts and not 40. But...I held position for few days only. One should compare saving on the slippage vs interest charges for the longer time period ( a month).