Margin on option stratgies, help !!

Discussion in 'Options' started by LondonPorpoise, Sep 13, 2019.

  1. Robert Morse

    Robert Morse Sponsor

    Also, if this is a PMA, your BP is based on 6.67X. Your BP should be reduced by 6.67X the net value of the spread. For us, on LST, this is done as 4X on my demo. 97,200/4 = $24,300 or close to the value of the spread (We use 3.975X for REg-T accounts)

    upload_2019-9-13_10-11-28.png
     
    #11     Sep 13, 2019
  2. Thanks Robert, I get what you are saying about ETNs (though I'm not sure I agree with the process).

    I put on a bull call spread on a volatile stock and also get a funny result. Max loss $3.6k total margin $20k +
     
    #12     Sep 13, 2019
  3. Robert Morse

    Robert Morse Sponsor

    If your account has $500,000. And you start the day with no positions, you Day Trading BP is about $3,335,000. If you buy a spread, which is not marginal worth $3600, it will not take $3600 out of the leverage value. It will take out 6.67X that in general or about $24,012. I'm guessing this is what you are seeing. You will have to call IB for a better explanation in case I'm off. I'm not familiar with their risk/margin system, but very familiar with PMAs.
     
    #13     Sep 13, 2019
  4. ffs1001

    ffs1001

    @LondonPorpoise , in your original VXX screenshot, you realise you are buying 100 lots?

    When I enter the same trade with 1 lot, I get margin of £2,039 (yes, I am also London based).

    (Also, for security, it's good to NOT show your account ID on any screenshot you post.)

    Edit: another thought - do you already have existing positions in either VXX or SHOP in this account? If so, then try it with another stock that you do not currently trade in and see if the margin is more reasonable.
     
    Last edited: Sep 13, 2019
    #14     Sep 13, 2019
  5. Sig

    Sig

    Well there's something I didn't know before today, thanks! Any idea why not, is it because of the exposure to the credit risk of the issuer?
     
    #15     Sep 13, 2019
  6. Robert Morse

    Robert Morse Sponsor

    PM was never meant to include fixed income. ETNs are backed by debt. The OCC grandfathered in many ETNs until this year.
    https://www.finra.org/rules-guidance/notices/19-21

    See attached. The new VXX that replaced the old one early this year was not PM eligible.
     
    #16     Sep 13, 2019
  7. Sig

    Sig

    Thanks, makes sense!
     
    #17     Sep 13, 2019
  8. Robert Morse

    Robert Morse Sponsor

    I think ETNs are very dangerous but I see no reason why they can be included.
     
    #18     Sep 13, 2019
  9. Sig

    Sig

    I always wondered why they don't trade at a discount to the ETFs of the same index to reflect the debt that they are. The discount should be greater than the issuer's bond interest rates given they're effectively unsecured debt.
     
    #19     Sep 13, 2019