I'd like to implement a long-short momentum strategy (~3 month hold period) and am not sure how much cash I need to do so. If I have $10k cash in my account now and want to go long a basket of 10 stocks and short an equivalent amount of SPY, how big can each side of the long/short be given my $10k in cash?
Hold period of 3 months with $10,000 = penny stocks. A momentum strategy based on what? What type of stocks? Why 3 months? Why long vs short? If you wanted to build a bicycle the only thing you've supplied is the handlebars.
Because I'm not trying to build a bicycle, I'm trying to understand how margin works in the context of long/short portfolios (e.g., of the kind that test excess returns on any number of stock market anomalies). Whatever indicators generated a 3-month relative signal of 10 stocks vs. SPY is irrelevant ... the point is I'd like to know, for $X of cash, what could I afford in terms of long 10 stocks / short SPY.
Places like Interactive Brokers will not tell you their formula for this. I've asked. It's complex and probably changes over time. Your margin requirements are not likely as stringent since you are going both long and short compared to being all long or all short. The calculation also includes a measure of volatility in the prior X days (maybe a year, but who knows) so your margin requirement for the exact same positions will change from one day to the next. The best advice is to just get into your positions and see what happens to your buying power.
As a rule of thumb I use "50%": the overnight margin required for a stock position is 50% of the position size. Only some specific stocks deviate from this (e.g. penny stocks, high-volatile stocks). For these you would have to look at the margin requirement on a position-by-position basis. Say that you would only use large cap stocks, plus SPY: you would be able to buy a total value of 20 k USD, thus 10 k USD for the long positions and 10 k USD for the SPY short position. I would not be comfortable with such position sizes, as it is too close to the limit and I may expose myself to interference by the broker who decides to close/reduce positions. I would therefor run this strategy without using margin: go long 5 k USD and go short SPY 5 k USD.