Buying Index funds on portfolio margin

emulimu

emulimu

I am trying to understand the portfolio margin requirements of buying 1000 shares of SPY. Really appreciate if you can help me out here.
Let's say SPY is $300 per share when I buy it on portfolio margin. It costs $300,000 and I need to put up 10% which is $30k. Now after I buy it for $300 per share, if the SPY falls to $200 per share, what will my new margin requirement be? Thanks very much.
 
I might be wrong, but I think your margin would be $20k at $200,000 assuming 10% margin, but your net liq is now $100k smaller than it was when you put on the trade. So if your account had $300k in it when you put on the trade, you have a $200k net liq and using $20k for margin if SPY were to fall to $200. If you had a $100k net liq when you put the trade on, you would have started getting liquidated when your netliq dropped to around $22k. Portfolio margin is more stress-test based and depends on your exposure.

https://tickertape.tdameritrade.com/trading/portfolio-margin-15300
 
In real trading a drop of that kind would result in pm requirements changing. So it actually becomes a two variable question. PM requirement are not static.
 
In your example, if your broker requires 10% for SPY, you will always have to maintain equity of 10% or more of that value. Some brokers only calculate that at end of the day and some do their own calculations in real-time. It does not matter your cost basis. The risk shocks are done each day and the OCC and your broker for PM do not use cost basis.

emulimu said:
I am trying to understand the portfolio margin requirements of buying 1000 shares of SPY. Really appreciate if you can help me out here.
Let's say SPY is $300 per share when I buy it on portfolio margin. It costs $300,000 and I need to put up 10% which is $30k. Now after I buy it for $300 per share, if the SPY falls to $200 per share, what will my new margin requirement be? Thanks very much.
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Robert Morse said:
In your example, if your broker requires 10% for SPY, you will always have to maintain equity of 10% or more of that value. Some brokers only calculate that at end of the day and some do their own calculations in real-time. It does not matter your cost basis. The risk shocks are done each day and the OCC and your broker for PM do not use cost basis.
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This is what I am trying to figure out. 10% equity means I will have to put up even less if the SPY drops? In normal RegT, I would owe 100k as margin call i.e the full amount of loss ($300 - $200) x 1000.
 
ET180 said:
I might be wrong, but I think your margin would be $20k at $200,000 assuming 10% margin, but your net liq is now $100k smaller than it was when you put on the trade. So if your account had $300k in it when you put on the trade, you have a $200k net liq and using $20k for margin if SPY were to fall to $200. If you had a $100k net liq when you put the trade on, you would have started getting liquidated when your netliq dropped to around $22k. Portfolio margin is more stress-test based and depends on your exposure.

https://tickertape.tdameritrade.com/trading/portfolio-margin-15300
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In RegT margin, I would receive a margin call for 100k but since this is PM, I can put 10% of that (10k) and keep the party going?
 
emulimu said:
In RegT margin, I would receive a margin call for 100k but since this is PM, I can put 10% of that (10k) and keep the party going?
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No, with Reg-T you would have needed $150k cash to buy $300k worth of SPY. After the SPY drop, you'd have $50k equity with $200k in stock. If your broker requires 25% maintenance, you wouldn't get called until it fell below 200k, and the mc amount would be much less than $100k

Your question really is about how much a stock has to drop before you get margin called. This has nothing to do with Reg-T vs PM. Google the formula, it works for both
 
Yes, your margin requirement is lower but so is your equity. Let's take a more real-life example to help you understand. E.G. PMA with $300,000 in equity. You go out and buy $2.5mm of SPY. The Margin at 10% is $250,000. SPY then drops 3%. Your equity is now ($2.5mm*.03=$75K) $75K less or $175,000. The position is now worth $2.425mm so the requirement is "only" $242,500, but you only have $175K in your account. So yes, higher-priced stocks and indexes require more margin and lower-priced ones less, but that is not the entire story.

emulimu said:
This is what I am trying to figure out. 10% equity means I will have to put up even less if the SPY drops? In normal RegT, I would owe 100k as margin call i.e the full amount of loss ($300 - $200) x 1000.
More...
 
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