Hello, I have a question about covered call using CFDs instead of stock. I will try to give an example. Lets assume the account has $1000 in cash and the broker requires 10% in margin for the CFD. I use IB(interactive brokers) 1. Buy 1 CFD of XYZ for price $100 2. Sell 1 Call at strike 102 for premium $2 The CFD controls 100 shares which has a total worth of 100 shares x $100 = $10,000 Margin requirment is then: $1,000 which exists on the account We also receive a premium of: $2 x 100 = $200 _______________________________________________ Now I have 3 questions below. What I wonder about is how the margin works for a trade like this? 1. Is this trade possible to do? 2. If the the price goes to $103 at expiration, we can say that we would be "called away". However, we do not have any shares. Does this mean that we would be short 100 shares of XYZ. If that is true, how would that scenario work as we don't have any margin left aside from the premium of $200. Owning long stock might require margin but I wonder if borrowing shares(short) perheps has other margin rules? (To mention, - I don't want to own the shares so if I got short 100 shares, I would want to buy back the shares the second after to not be either long or short any shares. At this point, I also would want to sell the CFD) 3. To mention, my idéa would be to have a stoploss around price $98 as close to breakeven as possible, - to buy back the option and sell the CFD. Does the margin requirements change at this point? Thanks
Need to ask a broker in a CFD legal country. No CFDs in the US. You would need a marketplace where the option clearing firm would accept the CFD as a good deliverable or a CFD dealer that also is an options dealer. Last time I was in Australia the ASX was just getting ready to list CFDs to compete with the off exchange dealers. ASX also ran clearing so it is possible the entire transaction could occur in the closed loop of the ASX. On paper this could be done for a net credit if you find a marketplace that can clear all of the pieces or find an off exchange dealer that can do all of the pieces.
I use Interactive Brokers. They offer CFD and Options trading. I am a Swedish citizen so I should be able to trade CFDs. So I try to refer to my question again.
My sincere condolences. In any case, Contracts for Difference (CFDs) are not tradeable in the U.S. There are financial rules in place for US (and Canada, Hong, Kong, and others) residents (CFTC, SEC, Treasury , etc.) , which make it impossible to trade CFDs as an individual. It is considered a form of gambling and is illegal. IB's services are available to foreign account holders. See https://www.interactivebrokers.co.jp or http://ibkb.interactivebrokers.com/article/1984 for more information. To that end I recommend that you post your questions to a group of traders that are located in a country where CFDs are legal. Note that IB's websites (which you have stated that you use) clearly state "All clients (excluding residents of the US, Canada, Hong Kong, Israel and Australia) enjoy electronic access to IB CFDs". Best
As I am Swedish, I am able to trade CFDs. Perheps someone on the forum can trade CFDs or anyone still can understand my question.
Go for it. Let us know how it all turns out. Perhaps so. But, on the other hand, perhaps not. I checked my list of things to avoid in life and CFDs, Forex, Binary Options, B Hussein Obama, Hillary Clinton and scrapple are all on it. As is haggis. Ha en bra dag. Best
Using CFDs would be ok if the options were cash settled. With phisycal delivery you still have to sell or buy 100 of underlier.