My "AVAILABLE DOLLARS" (for options) at TD Ameritrade is much less than my cash position reduced by the "BP Effect" of each option position. A simplified example: deposit $10,000 cash, wait to clear, and create 3 option positions with a -$2000 "BP Effect" each; then my "AVAILABLE DOLLARS" *should* be $10K-3*$2K=$4000; but TD Ameritrade would show about $1000. Note: the "BP Effect" would cover any possible loss per my analysis. When asked, TD Ameritrade replied: "There are two formulas for determining options buying power. What you've described is the Excess Equity formula, which is all of the fully cleared cash in excess of the requirements for each position. Secondly there's SMA (Special Memorandum Account), which tracks all activity - buys, sells, deposits, withdrawals, etc - and tracks a running value of all activity that increases or decreases the SMA balance. This SMA value is tracked to be in compliance with Regulation T requirements for trading in margin accounts." I searched the internet for how the SMA formula would apply my account, and I found no examples with option positions. Anybody have a good reference on the matter to duplicate their computations? (Maybe this is similar to the "Does any Broker get Option Backspreads Margin Right?" thread, but there is no mention of SMA formula there ... I think that would relate to the "BP Effect" being very excessive in some cases. This seems different.)
Reg T determines minimum margin. Brokers have the right to require more margin than that. Google "TD Ameritrade Margin handbook" for details. It might help if you indicated what your 3 option positions are so that the $2,000 "BP Effect" can be verified ---> strike(s) and premium, not the symbol.
An example is: SOLD -4 IRON CONDOR FB 19JAN18 195/200/165/160 CALL/PUT That position has a maximum loss of 4x5x100 = $2000 (less the premium collected), and -$2000 matches the "BP Effect" shown in the account positions. In the "TD Ameritrade Margin Handbook", they give a comparable example suggesting the margin requirement would be $2000 less the premium received. Also, the handbook says: "SMA (Special Memorandum Account)— SMA is a separate margin account maintained by the brokerage firm. ... The main purpose of the SMA is to preserve the client’s buying power." SMA seems to be an adder to buying power, not a reducer. When TD Ameritrade cited SMA (and Reg T) to squeeze my account's buying power, it seems like they spouted some gibberish to hopefully appease me rather than answer clearly. I will take your "Brokers have the right to require more margin than that" as the gospel (i.e., the margin requirement is computed at their whim). Apparently, there is no certain and public formula. Thanks. I'm satisfied by your answer.
No I don't have portfolio margin at TD Amer ... this account is too small ... it is mostly for the seeming superior Think-Or-Swim platform tools (and I do most trading at InteractiveBrokers where I do have portfolio margin). Portfolio margin would help (and if I grow the account, I'll request it), but the margin requirement still seems overly onerous.
Yes, it does seem like gibberish. OK, muddying the waters a bit more... Federal Reserve Board’s Regulation T dictates the limit on how much an investor can borrow. For equities, this is up to 50% of the price of the security purchased and the broker can require more than a 50%. You can read about this at Investopedia or any other reputable web site. "Well" he replied, "I'm referring to my option positions, not equities." Yep, the same holds true for brokers who want to limit their risk when account holders write options. Where both of these comments falls apart is that a defined risk option strategy like a vertical spread has a margin requirement of either: (1) the debit cost or (2) the difference in strikes less the premium received. An iron condor is simply a pair of verticals so it's no different. I have no clue why TD would require more margin than the maximum loss unless they are somehow factoring the margin on both sides (???) which would be wrong. As for SMA, it has been years since I have paid attention to it and my recollection of its calculations and details have faded. Perhaps someone else can fathom that part of your question.