Crazy! TDAmeritrade asks for 100% margin for buying a Long Call or Put option

Discussion in 'Options' started by trd, Mar 21, 2009.

  1. trd

    trd

    I don't get it:
    TDAmeritrade asks for 100% margin for buying a Long Call or Put option!
    I don't understand for what there is any such margin requirement for these order types.
    Other companies, for example IB, has ZERO margin requirement for these order types.
     
  2. Long options have no loan value so when bought so they must be paid for in full (100% of their cost).

    I'm curious as to what you meant by "TDAmeritrade asks for 100% margin for buying a Long Call or Put option!"

    Is this some blurb you read at their web site or are you saying that they require that you must have the cash to buy/sell the stock?
     
  3. SPIN is correct.

    There is zero MARGIN requirement to buy an option.

    But you MUST pay 100% of the cost, in cash. That's true for every brokerage firm, and I guarantee you that it's true for IB.

    Mark
     
  4. trd

    trd

    Sure they must be paid in full, but IMO, as I understand them,
    Ameritrade asks for an additional ("safety") margin.
    I just don't understand what they mean with "margin". My understanding
    of margin is that usually when shorting stocks or options a margin safety
    must be present in your account. But buying a Long Call or Put has nothing
    to do with Short Selling or Short Buying, therefore it is confusing why they mention "margin" for Buying Long Calls or Puts at all.

    This is from TDAmeritrade's "Margin Handbook" (page 12).
    How do you understand what they mean with "margin".
    "
    Long straddles

    Margin requirements for purchasing long straddles are the same as for
    buying any other long options contracts: 100% of the purchase price
    for each side of the straddle.

    Example of a long straddle:

    Action: Buy five puts STUE Corp.
    Date: March
    Price/Share: $39.25
    Market Strike Price: $40
    Option Premium: $2.50

    Action: Buy five calls STUE Corp.
    Date: March
    Price/Share: $39.25
    Market Strike Price: $40
    Option Premium: $1.75

    Since this is a long straddle, the margin requirements are 100% on each position.

    Long Put Requirement
    $2.50 x (5 x 100) = $1,250

    Long Call Requirement
    $1.75 x (5 x 100) = $875

    Requirement $2,125
    "
     
  5. auspiv

    auspiv

    yes, you need to purchase each put and call outright. they laid out the math easy to see:

    5 puts at $2.50 = $1250.
    5 calls at $1.75 = $875.

    total: $2125.

    each of those puts and calls must be paid for up front in cash. there is no margin for going long a put or call.

    i think that TD ameritrade means you must use 100% cash when they say 100% margin. if you needed 50% margin, you'd only have to put up 50% of the cash. hopefully this helps.
     
  6. Long equity calls or puts that aren't offset by some other position are unmarginable, at any broker. Whether it's stated as "no margin requirement, but 100% of the cost is taken out of cash" or "margin is 100% of the cost of the option", the effect on your available margin is about the same.
     
  7. Yeah, you're not paying for the underlying if that's what you mean.

    .....I think that's what you mean.

    (it looks like you're not a math whiz)
     
  8. johnnyc

    johnnyc

    looks right. where's the additional ("safety") come in to play? How much do you think this should cost?
     
  9. trd

    trd

    I was thinking $2,125 for buying the stuff plus the same amount ("100% margin requirement") as safety in your account.
    But, as you and others have pointed out, it seems only $2,125 is needed.
    The wording "margin" just confused me.