Can a kind soul please calculate how much collateral one needs for the following "Vertical Put Spread" trade: Ticker=UVIX, ExpirationDate=2023-01-20, StrikeOfShortPut=9, StrikeOfLongPut=4, and "Order type: Net credit" = $3.80 For example using these Bid/Ask data. Thx.
I would hope you are not seriously considering such a trade! You are taking a bullish position on a bearish product. The long time frame will likely cause you to deal with the impending reverse splits (one or two perhaps before Jan expiry). The 5-3.80=1.20 does not give a comprehensive understanding of the position.
It's not that an important trade, just a fugging example, as I'm just attempting to learn the maths behind such a vertical trade consisting of multiple legs. What does your above calculation practically mean? Ie. the 1.20. Thx.
K. Your risk is $5.00 but since 3.80 credit received, overall risk should be 1.20 ($120) ignoring assignment and related issues. Note: you can be assigned on that short leg, which could result in temporary need for $900 (but there would be some value in your 4 strike to help you unwind it). Others should be able to provide more clear info on this.
Yeah, that sounds right, assuming you could get a $3.80 credit. So BP reduced by $120 plus C&F. And should you ever get assigned, just close the stock position immediately.
Mine unfortunately does not show this info. Only after firing the order you will know whether it accepts it or not Mine did not accept, saying "Order rejected:You do not have enough available cash/buying power for this order", though IMO I have enough settled cash for this trade. I now opened a support ticket there.
The rule of thumb is 25-50% of the value of your short leg, in case you got the assignment and you have to pay up. Marginable securities requirements are different by the broker.
Reading between the lines here, but since I do not know your broker, the rejection reason may also be inaccurate! I think you indicated you only have a cash account, and may not be cleared for trading spreads! So, possible that is "actual rejection reason". Check with your broker to be sure.
Vertical spreads are very well possible to trade in my cash account. I just haven't figured out yet why it executed, but then got rejected b/c of allegedly insufficient cash. I just wonder why they have put vertical spreads into the cash account, so that the user can pick and use them. It must have a reason why it's put into the cash account. B/c otherwise they simply could have removed or disabled it in a cash account. And: the above error message could instead say "Vertical spread trading is not possible in such a cash account. Please upgrade your account to a margin account" or so. But it did not say so. So, some things don't add-up, don't make sense. I just try to find the reason by such experimenting and trying out And: logic tells me that such spread trading (which of course limits the risk) should very well be possible also in a cash account. Why not? Are cash account owners some second class citizens than margin account owners? IMO, there is not any plausible reason for not allowing such spread trading in a cash account. Am I maybe overlooking something? Can someone think of a rationale reason why vertical spread trading should not be made possible in a cash account?