Conversion Margin IB question

Discussion in 'Trading' started by frostengine, Dec 5, 2008.

  1. Ok... lets say I have a stock trade, lets say it was a short... the trade is verify profitable, but I am trying to defer taking profit on the trade for tax reasons. Want to push it into next year, but I want to lock in my profits...

    The easy solution will be to create a synthetic long using options. No problem here, i'm fine with the small commisions/slippage involved in setting up this trade since it will delay me taking profits on the trade into next year which is what I want.

    So I set up this conversion, actually since I was short the stock is a reversal not a conversion, but thats not the issue. The issue is the margin. This position for all practical purposes is closed out. What are my margin ramifications?

    I am using IB. Acording to IB, the margin requirements for a reversal is:

    (50% * short market value) + Maximum ((Put Exercise Price - Stock Market Price),0). Long call cost is subtracted from cash, short stock and put proceeds are applied to cash, and short position is subtracted from equity with loan value.

    (10% of Put Exercise price) + Maximum ((Put Exercise Price - Stock Market Price),0).

    Initial does not matter as I already have the short stock, so my initial adding the sythentic long isn't going to hurt..

    Maitenance is where my concern is. It appears it is basicaly around 10% of of the puts strike, which is in effect around 10% of the cost of my current short position.

    So if I am understanding this correctly, I get around 90% of my money back for other positions? Is this correct? What about at the end of the day? IB does a sweep at the end of the day dealing with Reg-T margin...

    How is Reg-T margin affected? For some reason i think they use the initial margin for the position in this calculation and not the maitenance?

    Anyone done this type of trade before at IB and can comment on what my effect on Reg-T margin at the end of each day is going to be?