Proprietary Margin Requirements for Spreads

Discussion in 'Options' started by optionsplayer, Apr 10, 2002.

  1. I realize that intraday equity buying power in some houses can go as high as 10-1. My inquiry is concerning deep out of the money put or call spreads, say a week out from an expiration on a proprietary platform.

    If you are licensed and a legit prop trader, do you guys get any "extra" juice with respect to this kind of strategy? In other words, what kind of leverage does the prop platform offer with respect to writing covered option spreads. I realize some houses discourage and instill a flat policy by close but any amplification on the leverage and margin requirement in this area would be appreciated.

    For instance, in retail brokerage, if you write say a put spread, and the difference is 10 points between the two strikes, you would have to essentially cover all of what is in between, the 10 points times # of shares/contracts. Often you will even be required to have additional minimum equity for other non-relative reasons. It can be kind of frustrating especially in traditional brokerages like Morgan Stanley.

    Thanks in advance
  2. If you trade at a pro firm that allows you to trade options, most will give you Broker/Dealer margin on spreads, Conversions, Syntheic Puts, Syntheic Calls etc. Since the 1987 crash, no clearing firm will let traders sell naked options in size(especially puts) since the volatility risk can be enormous. I have included our
    risk parameters for our LLC members. We are not an option trading firm, but we allow stock traders to do option strategies as
    part of their trading . See
    and for
    margin examples and requirements. These examples are for comparison purposes only and are guidelines for licensed professional traders.

    Gene Weissman
    Lieber & Weissman Sec., L.L.C.

    Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document are available from your broker or the Chicago Board Options Exchange, 400 S. LaSalle Street, Chicago, IL 60605. The OCC Prospectus contains information on options issued by The Options Clearing Corporation. Copies of this document are available from The Options Clearing Corporation, 440 S. LaSalle Street, 24th Floor, Chicago, IL 60605 or the Chicago Board Options Exchange, 400 S. LaSalle Street, Chicago, IL 60605. The documents available discuss exchange-traded options issued by The Options Clearing Corporation and are intended for educational purposes. No statement in the documents should be construed as a recommendation to buy or sell a security or to provide investment advice.