What is "Market Value" of an Option?

Discussion in 'Options' started by Sunfair, Nov 10, 2002.

  1. Sunfair


    I frequently bring my "Current Maintenance" amount to within a few dollars of my "Equity with Loan" amount and have had short puts liquidated when IB's margin calculations have resulted in amounts greater than I had figured. For example:

    I'm short Worldcom $5 puts, so I figure that unless the stock drops under $0.10, that the market value of the put can't be less than $4.90. Using IB's formula [((100% * Market Value of Option) + $250)] I figure that $740 per Put is max I'll need. On day IB liquidated positions at $500 per, the stock had a low of $0.111 and I had a minimum of $746.89 CASH available per Put. I have been unable to get IB to provide me with the methodology they used to calculate the market value of the puts.

    Even if stock hit $0.01 who would willingly pay $5 for a $5 Put?
  2. qdz


    They changed.

    When I had an account with IB, I had to use check margin every time before placing order. Maybe you want to do that as well. Because otherwise it might cause huge problems later. And I missed buy and sell opportunities.

  3. Sunfair


    The max margin IB ever showed prior to liquidation was $740.
  4. Sunfair


    Forgot to mention that the positions had been open at least a week.
  5. Good gawd, why would they even hold that much? The max loss on a short 5 put is $500. I'll take your word for it though since I dont know their requirements. Thats messed up.

    I hate to ask this since I assume you know the difference, but are you sure you weren't assigned?
  6. Sunfair


    Yes, I'm sure. They bought the puts for me at $500 + commission. At least if I were assigned I would have the 100 shares per contract. That's why I don't understand how the puts could ever have a "market value" of $5.