Question on margin requirement at IB

Discussion in 'Options' started by edfor, Oct 16, 2011.

  1. edfor


    I'm interested in short naked puts. The page at IB says:

    Put Price + Maximum((15%[3] * Underlying Price - Out of the Money Amount), (10% * Strike Price))

    Now let's say I had some mad money that I wanted to get a ton of leverage out of. If I deposit 10k and wanted to buy shares of SPY I could only buy 20k worth or about 163 shares. But if I buy 81 shares with cash and then use my margin to sell put options it sounds like I could get way more leverage. I could sell put options with the underlying of up to 10k/15% = 66,667. So I could sell 5 contracts of SPY OCT puts with some ridiculous price like 170 so my delta is exactly 1. Now I effectively own 70k worth of SPY with my 10k in equity. Obviously I wouldn't have much cushion, but in terms of expected value it can't be a bad idea to leverage up at 6:1. My risk of ruin is huge, but if it's just mad money I don't really care too much.

    Is this possible or have I completely misread the rules? Also, do I pay margin interest on the 60k I'm effectively borrowing in this situation?
  2. rmorse

    rmorse ET Sponsor