In following type of trading does it matter if the a/c is Cash a/c / Reg T margin a/c or Portfolio Margin A/c ( all US market) 1) Scenario 1: Say one has 10K in a/c and is long an Option worth 10K ( call / put does not matter) Given that to be long an option is a limited risk strategy one has to have 100% of that money upfront. If that is true then having a portfolio margin a/c has no real advantage is it? Please correct me if I am wrong 1) Scenario 1: Say one has 10K in a/c and is long an Option Spread worth 10K ( call / put does not matter) Given that to be long an option spread is a limited risk strategy one has to have 100% of that money upfront. If that is true then having a portfolio margin a/c has no real advantage is it? Please correct me if I am wrong
You can't open a PMA with only $10,000. That said: Cash and Reg-T will require $10,000 or 100% of the net purchase price. PMA will shock the portfolio by 15% and require that loss as your margin requirement or whatever that clearing firm/broker requires as an add-on in addition to the OCC TIMS requirement. Yes, in a PMA, it can be higher. In general, if you are only a buyer of options, don't sell spreads or don't hedge or trade stock , Reg-T might be better than PMA. Cash is never better.
Hi Robert I know Pm requires 100K + but my question is if one is a Buyer of an Option does one get any advantage by either Reg T or PM? since one has to put up the entire purchase pric eof an Option !
In a PMA you don't have to put up the entire purchase price. It just tends to come close to that for most options except Leaps and stocks with a high IVol. You are on the right track. If that is 100% of your trading, you get little benefit from PM.
little or NO benefit , If I have 150 K and for argument sake I am a buyer of options worth 150K then it does not matter if it is a cash a/c also? Or If I am a buyer of say Straddles worth 150K .. still same is it not? I can only purchase them to the tune of 150K not more, how does it matter if it is a LEAP or a option on high or low vol underlying...!
There is no advantage to a cash account over margin for options. It is only more restrictive. UP or down 15% on most equity options with a low vol will show close to a full loss. Leaps and options with a high vol wills till have a value. That is why it is difference with PM which is risk based.