Overnight margin for option positions

Discussion in 'Options' started by RedRat, Sep 11, 2006.

  1. RedRat


    Hi all,

    May be that question has already arised on board, but I was unable to find an answer.

    How does brokerage firms recompute margin for overnight option positions? Especially I am interested in IB, but it should be quite common situation.

    To compute margin you need to know underlying price, option strike, option price. Here is an small example for naked put:

    margin = maximum (
    1) 100% of option proceeds, plus 20% of underlying security value less out-of-the-money amount, if any
    2) minimum requirement is option proceeds plus 10% of the put's aggregate exercise price (number of contracts x exercise price x $100)

    The question is about overnight margin. During overnight there is no trading for options, so that we do not have bid/ask or last trade - which is needed to compute margin using previous formula. But underlying stock can be traded OTC and it's price can change the margin.

    How does IB computes overnight margin?
    Does it use previous day quotes? We can use previous day closing price and current underlying value - to substitute into the formula and receive margin value.

    Are there any other ways? Say you can recompute option theoretical value using some kind of Black-Scholes equation?

    Thank you in advance,