Broken Wing Butterfly margin at IB

[options_fanatic]

Hello all,

Has anyone traded BWB at IB? They don't have this structure in the list of standard strategies. You can build it as leg by leg trade, but when checking margin, they handle the credit spread as a standalone transaction.

For example, trying to do SPX 2050/2025/1990 structure. The margin should be 1k because the 2025/1990 spread is 10 points wider than the 2050/2025 spread, so it is partially protected and the maximum loss is 1k. But IB requires margin of 3.5k as if the 2025/1990 spread was not protected.

 

[justrading]

On the option trader page you can use the strategy builder to construct it.

Click on Trading Tools-->Option Trader then set the symbols and you are ready.

 

[options_fanatic]

It won't make a difference, the margin requirement remains the same (3.5k).

 

[options_fanatic]

 

[justrading]

It is strange. Suggest you ask them via chat or a support ticket, because your max liability is capped at 1K. It would be interesting to know what they have to say.

 

[spec77]

I think IB doesn't recognize BWB as a single trade, so they treat each leg separately. To be eligible for reduced margin, the strike differentials on both the call and put side must be equal, i.e. equidistant. This applies to butterflies as well as condors

Try to use futures options (ES in your case) instead of index options. You can benefit from SPAN margin

 

[Bekim]

OptionsHouse does this same thing, does anyone know a broker that does not margin this way? TOS?

 

[newwurldmn]

Hello all,

Has anyone traded BWB at IB? They don't have this structure in the list of standard strategies. You can build it as leg by leg trade, but when checking margin, they handle the credit spread as a standalone transaction.

For example, trying to do SPX 2050/2025/1990 structure. The margin should be 1k because the 2025/1990 spread is 10 points wider than the 2050/2025 spread, so it is partially protected and the maximum loss is 1k. But IB requires margin of 3.5k as if the 2025/1990 spread was not protected.

There is no protection from the other spread in a butterfly. The max this can be worth is 3500. It being uncentered doesn't matter.

 

[Kibitzer]

OptionsHouse does this same thing, does anyone know a broker that does not margin this way? TOS?

With portfolio margin in ToS, a long SPX fly 2050/2025/1990 has a margin requirement (excluding initial premium) of $1,000, as it should be.

 

[Bekim]

Are you sure it says it that way in a pnl graph but it can calculate the margin differently elsewhere?