Portfolio Margin a/c question

Discussion in 'Options' started by traderjo, Jun 19, 2017.

  1. traderjo

    traderjo

    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
     
  2. Robert Morse

    Robert Morse Sponsor

    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.
     
    Chubbly likes this.
  3. traderjo

    traderjo

    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 !
     
  4. Robert Morse

    Robert Morse Sponsor

    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.
     
  5. traderjo

    traderjo

    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...!
     
  6. Robert Morse

    Robert Morse Sponsor

    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.