Any margin requirment for diagonal spread?

[xiangfin]

Hi,

I am currently holding AAPL 08Jan. 180 call with a price of 10.78. I am going to sell its 08Apr. 200 call priced at 12.85 to hedge my holing. Thus, I believe I construct a diagonal spread.

My question, will InteractiveBrokers charge me extra margin in addition to the 10.78 I already paid?

How do you think about this diagonal? Will it be a good hedge?

Thanks.

 

[commiebat]

Quote from xiangfin:

Hi,

I am currently holding AAPL 08Jan. 180 call with a price of 10.78. I am going to sell its 08Apr. 200 call priced at 12.85 to hedge my holing. Thus, I believe I construct a diagonal spread.

My question, will InteractiveBrokers charge me extra margin in addition to the 10.78 I already paid?

Most diagonal spreads go the other way - with the long leg long-term and the short leg short-term. In the traditional diagonal, you would have a limited loss position similiar to a covered call. The long option is paid for, and the losses from the short option are covered by the long option, so no extra margin is required.

In your case, the short leg is longer-term than the long leg. IB will probably require margin as if the Apr 200 were naked, because your worst-case scenario is that the Jan 180 expires and then the Apr 200 goes ITM, costing you money. The risk profile for that situation is that of a naked call.

Will it be a good hedge?

It would not be a good hedge, because by writing longer-term than your long option you are adding a different type of risk and increasing your total margin requirement. If you want to write against your January calls, I suggest you write December or January calls against it.