"Yes, I am seeing that as well, they now require crazy initial margin to own put spreads in all vol etps and not just that, looks like they now charge initial margin for just owning options. I have some puts and they are charging me around to 100% initial margin. This makes no sense at all, owning options has no risk, you are only risking what you paid for option. I am ok with them raising margin requirements for being short volatility and writing calls and maybe even puts, but buying options is margin-able now? Have they lost their minds ? The worst part is that they are not providing any details about what is happening. They change margin requirements on vix etps daily now and keep customers in the dark. I am starting to look where to move, this is too much." Agreed you can't lose more than you pay - 100% initial means just that, but Volatility and SPX trade after hours and this will become more of a factor depending on the character of the spread. European Calendars used to trade minimum margin and that's a mistake the houses won't make again. PM minimums have almost doubled since they were introduced and European Style Index spreads continue to be a concern going into settlement. Retail desks don't really understand volatility products - anyone who has really good sense of trading volatility isn't going to reside on a retail desk. Ask someone on a retail desk how busy they were last week with all of the exercises in IRA accounts relating to SPY credit spreads and the SPY trading X. Retail is simply going to margin it to death.
OK, first of all let me clarify ~100% initial margin. Here is what I mean, if you purchase a $300 option in vxx/uvxy/svxy, IB will want to see $200-$400 in cash in your account to hold that option ( after you paid for it ), they do that by charging you an initial margin. What kind of risk does this bring to IB ? if the underlying moves and option expires worthless, I loose the premium I paid, why charge me the margin for owning options all over sudden ? Now, what do European calendars have to do with anything ? I did not say its a VIX futures spreads or vix option spreads, its just an option in vix etp like vxx. This has nothing to do with what we are talking about.... There is no overnight risk for them. Now regarding "Retail desks don't really understand volatility products" - you are telling me IB is doing this because they are concerned with client funds ? So you are telling me it there is no risk of buying nvda options, tsla options, or options on one of those triple leveraged etfs, or whatever the 1000 p/e stock is popular these days, so IB is OK with that and me trading futures with 1:30 leverage and forex with 1:40 leverage and so on, and they could care less for past 8 years when most of the retail accounts where loosing money buying vix etps and now they are concerned ? Seriously ? Don't you think maybe IB just realized they are sitting on a huge short vol position and they are just worried about themselves and thats why they are doing this ? And they don't even care to actually take a look at whats going on and distinguish call selling and short selling from buying options. Trading options is risky by definition just like trading futures, always has been, always will be. Its not IB's place to dictate what clients should or should not trade. If they are concerned with their own risk thats fine, just make sure you are fair and transparent about whats going on and at least pretend to care about customers and finally provide clear margin requirements, its not that complicated.
The answer is yes to most of your question. No one said there is no risk - the risk is different with simple equity options, but there is still risk. They actually charge you more than the initial premium for a straight outright call or put buy ? Again margin isn't about your p/l - it's about their p/l. Do you have adverse history with margins in the past (at any brokerage) ?
Yes they do. They charge only initial requirements for now, so at least there is no risk of them starting liquidating your options, but who knows whats next. Their raise in initial can be followed by raise in maintenance margin. I have seen a number of margin increases in VIX futures and I get it, its necessary sometimes, but at least they have always been upfront about what the new margin requirements are. Right now its not clear. Here is another example: They charge you ~200% initial margin requirements for shorting VXX, which is fine but they also charge you 200% to buy xiv. Now why would a sane person put a 200% initial margin requirement on purchasing any kind of equity ? Unless they simply took all vix etps, classified them by direction (inverse or regular ) and the leverage factor. So they charge 400% for any double leveraged product and 200% for any single levered product, without even caring ( or frankly understanding ) that buying xiv and shorting vxx do not carry the same kind of risk. What normally happens if a broker wants to raise margin on a stock that is becoming too volatile or potentially going out of business, they raise the margin to 100% once it gets under $5 and that makes sense and this is not rocket science. Asking clients to provide 18K to be long xiv that is worth roughly 9K for 100 shares is just ridiculous. If they want to stop supporting vix products, they should do just that and give clients say 3 month to move accounts or close positions. Instead they have adopted some sort of flexible margining model which makes absolutely no sense and is completely unpredictable. Whats worse their customer service has no idea whats going on.
We are currently testing LVX (The name will change, I think Lightspeed Vol Trader) for Wedbush clients. October or November roll out. Right now, all our LVX clients are at IB. I expect that to change as our rates at Wedbush will be lower and with more consistent margin/risk. Bob
They're dropping an unsubtle hint they'd prefer their clients avoid vol products. But many on ET are slow on the uptake.
Why would they give a flying fuck if their clients went long volatility products putting up margin equal to the most it is physically possible to lose? Is it some kind of morality play.