If there's a crash tomorrow.

Discussion in 'Options' started by asdfghj7, Mar 7, 2010.

  1. I want to understand the details of a market crash as it relates to margin requirements. Up until now, I only understand the concept of a crash. Below is an example of what I believe it means. For those who know, please fill in the holes of my misunderstanding. I'm a visual learner, so here's an example.

    This past Friday, the June 2010 E-mini S&P contract had daily movement around 1130 going into the close. In the last few hours of Friday's trading hours, we sold a credit spread consisting of one short 925put sold for $280 and the purchase of one 900put for $220. This gave us a $60 credit. Tonight, the ES market will tumble overnight in the globex session. Tomorrow morning, we turn on the computer at 930, only to realize that the market has plummeted to 800. Our largest possible dollar loss, after this devastion, would be $2500 minus the $60 credit. When the trade was placed Friday, we had a $10000 margin account. What would be the absolute largest amount required for margin. It can't be more than $2500 can it? Thanks for the help.
    Love Joshua

    (Come on guys, a little humor. Plus, it's an ET first. Look for yourself)
  2. That is a horrible trade :) 60 bucks?? Shit you can make more flipping burgers at BK with less risk..
  3. I agree. This detailed visual example will help my comprehension of the answer I recieve.
  4. Check SPAN...
    Your max loss is limited to the spread though...
  5. Stock index puts tend to have a steep skew. The credit you're receiving is too "small" considering how far out-of-the-money you are. :(
  6. I've been studying the largest market declines from years past. I'm researching 'concepts' related to past naked put sellers, and how a debit spread could have been the wiser method of trading with short put options, prior to past meltdowns. I'm not 100% sure as to how much margin would be required in my short position consisting of a 925p to 900p June 2010 credit spread. During crashes, I've heard of S&P margins going up many times over, after a large downmove. And I ask myself, 'Could I wakeup one morning to find my credit spread margin requirement has gone up 10x to 50x from the day/week/or month before.