A lot has already been said as to how PM is calculated. I don't use IB but I will add that trading short strangles on stocks like GOOG and AAPL in a PM account would not surprise me to see your margin requirements higher than usual. Since PM is risk based, these are stocks that tend to move in dramatic fashion. Trade what you are comfortable with, but I must say, these are trades that can desimate your portfolio and you will not have PM for long. I hope you can see how. Use PM the right way, keep your account alive and growing. I would use back ratios spreads on those stocks, then take a look at what your margin requirements will be.
It's not inconceivable that this could happen and it really depends on your exact positions. If you post the details of your positions (i.e. strike, expiry, etc) I can work out the Portfolio Margin Calculation for you and repost the results. My guess here is that there is an IB position concentration penalty at work here, but we'll need to perform the full Portfolio Margin calculation before this conclusion can be reached with any certainty. So, for example, at a 15% positive move in goog (i.e. the stess move for individual stocks) plus some sort of shock to implied vol (part of IBs methodology) one could imagine that the loss on your short strangle could become significant, but not as high as the 35k requirement suggests. Here is the thinking behind this assertion: The net delta of the strangle position would start to move to maybe somewhere around 0.7 (just a guess at this point) due to the imp vol stress move and the 15% stress move on the goog price. This means you would be incurring a loss at about 0.7 multiplied by the stress move (0.7 * 15% = 10.5%). GOOG is trading at around $632 and $632 times 10.5% equals $66.36. We then multiply this by 100 shares and end up with $6636. So, $6636 should be the PM margin requirement just for the GOOG strangle. Using similar calcs for the other positions (and making adjustments based on index type, etc) I get: AAPL = $6,405 GOOG = $6,636 SPY = $767 This means the total Portfolio Margin requirement should be somewhere around $13,808. So, yes, I think there may be some IB position concentration pixie dust being sprinkled onto your margin requirements. -Jason
Do you mean that with 3 strangles you get 35K margin requirement but with 5 strangles it would have been only 15k or 16K? if thats the case one can add 2 more strangles, lets say on DELL and MSFT and have less cash tied up but that doesn't make sense considering most of these stocks are tech stocks and move the same way, also, with 5 strangles there is always more delta mouvement than with 3.
Well, that may or may not be the case. I would need you to give me the exact details of the positions so I can run the numbers. But yes, if a position concentration penalty is at work here, then you would see a lower margin requirement if you split the same exposure across a greater number of underlyings. While they are all exposed to what I would call the "tech sector factor", adding underlyings and reducing the exposure to each will diversify the company specific risk and thus lower overall risk considerably. To see this in action, just imagine what your loss would be if GOOG went bankrupt all of a suddent Enron style. Your loss would much greater than 35k. While that seems almost impossible, remember that people said the same things about GM and Lehman.
you know even though i have reg t margin and alot of this stuff doesn't apply to me as much.. margin changes mean everything .. so i keep a running tab of what i need to keep in cash reguardless of what it says i have available to invest.. i figured out quick that was a way to get washed out.. nothing like mental accounting fraud on yourself.. haha thinking you have more then you do just cause securities swing around..
you know i do wanna say something... if you guys are investing hundreds of thousands of dollars and levering up 5:1 don't you think you should really know the mechanics of this intimiately.. .meaning.. just as much as you model your trades for profit and loss.. you should model every trade as it effects your margin requirments in all senerios? To me the fact that one can lever up that high is wonderful.. i currently only have 20k to invest and therefore i obviously can't have Pmargin but i can tell you one thing.. hopefully if/when i do it get it i'm going to know the risk arrays and i'm damn sure going to model when the changes happen and how.. what a recipe for a blow up not knowing.. i've learned a few things from this thread.. people have more money then sense sometimes.. what you don't know will blow you up.. portfolio margin accounts are sometimes given out to people that don't deserve them haha... IB will tell you exactly why the requirment is the way it is.. tell them how its calculated.. WRITE THAT EQUATION DOWN.. and any of the other risk array equations and freaking keep them on your worksheet! if you don't know where the line is that will blow you up.. IT WILL FIND YOU..
Thanks for the thread. I have portfolio margin a/c. My question is : Can I calculate margin already used position by position ? The idea is to eliminate high usage positions for more efficiency. Thanks
Well. IB can give realised profit, unrealised profit , net liqidation value position by position - so why not margin usage position by position, Sometimes when I do a naked e.g. on FAS margin requirement is very high. But what about positions I have already done. ?
Bottom line you need their margin algo so you can put it into a spreadsheet and map/monitor everything