Sorry , forgot to mention its ratioed , simple DN. Short 100 shares + long 2 calls (if delta is 0.5 ). In this case I am paying just difference in rates. Cheaper when comparing to long straddles/strangles or long stock + long puts combo.
I still don't follow what you mean by cheaper. The interest you are getting on the short stock is embedded in the put as a discount.
Looks like PM doesnât recognizing accumulation of deltas for 1:1 short calendar position. Did anyone tried to get deltas flat via selling (or buying) stock? How did it affect margins?
I'm not really sure what you are saying, but there is no such thing as PM "recognizing" something or not. PM is simply allowing the retail trader to have access to minimum margins like a floor trader via the OCC's TIMS system. The PM requirement for a short calendar is just the max loss the position will theoretically have using currently implied vols over a standardized percentage move depending on the underlying. Where are you trading? It may be that the firm is charging you more margin because they want to, not because of PM.
I trade with IB . There is no "max loss" consideration : all calendars are 75 cents regardless to credit received. Back to my question : if stock moves up or down and my total deltas becomes 100 positive , option's prop shop will allowed me to short (long) 100 shares WITHOUT additional margins(unless I got the wrong info) . Not the same case with retail account.BTW , this is definetly not a complain ;I am very happy with my PM , I just trying to understand all the nuances before I step in size.
IV, For you to say "there is no max loss consideration" and "not the same case with retail" you are clearly confusing two things: the margin requirement of one specific broker (IB in this case) and the minimum margin allowed by Portfolio Margin. As a matter of fact, PM is less restrictive (+6%/-8% for SPX; +10%/-10% for NDX) than a JBO prop shop (+/-10% SPX, +/-15% NDX). PM will allow you to do what you want, your problem is that your specific broker is not allowing you to fully utilize PM, they are making you cover more.
opt , I understand what you are saying. All this margin lingo is still new to me ...PM , JBO. I used to be a cash&carry guy just up to few month ago
Opt, this is true on paper, but in reality, most JBO's let you have much better margin then CPM. Just because the risk thresholds are +/- 10% and 15%, does not mean that JBO clients are restricted to that.
Since I have not talked to every JBO in existence I will admit I was generalizing but since Bright, ECHO, and Generic all make you cover the JBO haircut I figured it was at least a relatively accurate one.