basic long/short carrying cost question

[luisHK]

Short call premiums are 100% cash right? so the premium starts earning IB daily interest from day 1?

Not sure about that, the margin requirements for your short calls come into play, if they are higher than the call premium, you should be paying interests on the position afaik. I've been following closely lately how TWS calculates interests on my account and it looks like this, margin requirements on short future options and futures positions will be deducted from the cash balance of the account. The formula is actually a little more complicated than that, will post the link in a minute. in my case it comes to roughly the initial margin requirements rather than the maintenance requirements of futures and FOPs positions deducted from the cash balance.

 

[luisHK]

https://www.interactivebrokers.com/en/index.php?f=interest&p=calculations

There are more explanatory links available on IB's website, curious of everyone's input here, below is the link to a related thread :

https://www.elitetrader.com/et/threads/ib-interests-calculations.324125/#post-4717626

 

[elt894]

i'm following how TWS calculates interests on my account and it looks like this, margin requirements on short options and futures positions will be deducted from the cash balance of the account.

Not positive, but I think that's only true for futures margin, not equity options. My understanding is you have a separate commodities sub-account and futures margin has to be posted there in cash.

 

[luisHK]

Not positive, but I think that's only true for futures margin, not equity options. My understanding is you have a separate commodities sub-account and futures margin has to be posted there in cash.

Possibly, I've only held hold short futures options lately so can't comment on equity options. Edited my post above to stress the Futures option part. Curious to read more on margin requirements and interests calculations. Easy to get margin requirements higher than call premium while selling call options on IB anyway, be it on equities or futures.

 

[silveredge]

Found it extremely difficult to reconcile the interests in IB, given variety of trades, margin calculations, and floating rates

 

[silveredge]

When the short call leg of a buy-write is ITM at expiration, when is the cash delivered into my account against the stocks?

 

[elt894]

T+2. If you're assigned on a Friday expiry you receive the cash on Tuesday.

 

[silveredge]

T+2. If you're assigned on a Friday expiry you receive the cash on Tuesday.

So an option assignment is a typical stock trade.

 

[luisHK]

luisHK said:
"i'm following how TWS calculates interests on my account and it looks like this, margin requirements on short options and futures positions will be deducted from the cash balance of the account."

Not positive, but I think that's only true for futures margin, not equity options. My understanding is you have a separate commodities sub-account and futures margin has to be posted there in cash.

Tried recently on simulated account to sell atm put on SPX and buy US-T for the whole amount of the cash available on the account, trying to replicate the PUT index strategy and see how TWS reacts interest wise. It seems you were right, for short SPX options the margin requirements are not deducted from the cash balance. Quite possibly it is the same for all equity options, although i'm not sure index options are equity options .
It's good news because i might end up replicating PUT on a real money account, glad to see margin issues won't mess with the returns although when the SPX positions lose money balance shoudl turn negative

 

[elt894]

although when the SPX positions lose money balance shoudl turn negative

I don't think the P/L for index options is settled nightly (not sure about future options). I think your net liquidation value would fluctuate, but your cash would be unchanged until expiry.