Call credit spread assignment procedure

[mervyn]

This video answered all my questions on what happens when you don't have the funds, or the shares to cover an assigment. At the end he mentions he uses TD Ameritrade which I think uses the ThinkorSwim platform, and he gives basically 2 scenarios with brokers.

• They will deposit the shares from a short put, or short you the shares from a short call, and you get a margin call where you can either close the position yourself or satisfy the margin.
• They force close your position.

Anyway with a spread there is virtually no risk since you have protection of the long option.

So I think I am going to do all my options trading with think or swim TD now, since it is all automated, and my broker doesn't seem to understand their own procedures...I have had conflicting information thus far. I was able to do a test trade today that is an ITM credit spread, expiring today. The net cost for me to deliver the shares on the (naked) short call is over $4 million dollars, and I only have 100k in my paper trading account, and it put the trade through np. Well see what happens...my guess is the platform will just close the position and post my loss.

I bet no one will do a 4m trade with you with merely 100k in cash. Try and see what happens, the worst case is reducing to 10% of the positions.

 

[wxytrader]

I bet no one will do a 4m trade with you with merely 100k in cash. Try and see what happens, the worst case is reducing to 10% of the positions.

Ya but it's a spread so really 100 short calls @ 416, and 100 long call options @ 417 is a $10,000 trade since that's the maximum risk, so that is the only margin they should require...and going but my tos paper trade that's exactly how it works.

 

[wxytrader]

Ya but it's a spread so really 100 short calls @ 416, and 100 long call options @ 417 is a $10,000 trade since that's the maximum risk, so that is the only margin they should require...and going but my tos paper trade that's exactly how it works.

Update. So been reading the literature at TD:

Uncovered naked calls - 100% of premium LESS any otm amount PLUS subject to minimum % requirement on the underlying interest.

the minimum percent for a short sale is 30% but not sure what it is in a spread.

 

[mervyn]

Update. So been reading the literature at TD:

Uncovered naked calls - 100% of premium LESS any otm amount PLUS subject to minimum % requirement on the underlying interest.

the minimum percent for a short sale is 30% but not sure what it is in a spread.

you just have to look at the short call exposures, any long calls are icing on a cake, doesn’t count in the margin mostly, it is cash out.

 

[wxytrader]

you just have to look at the short call exposures, any long calls are icing on a cake, doesn’t count in the margin mostly, it is cash out.

Yeah I was thinking the only margin exposure would be the spread risk ..but apparently there will be a % obligation on the underlying committment.

 

[mervyn]

Yeah I was thinking the only margin exposure would be the spread risk ..but apparently there will be a % obligation on the underlying committment.

now you understand.

 

[newwurldmn]

Yeah I was thinking the only margin exposure would be the spread risk ..but apparently there will be a % obligation on the underlying committment.

If the maturities are the same then the spread is the margin unless the broker has some different rule.

 

[mervyn]

If the maturities are the same then the spread is the margin unless the broker has some different rule.

we are in a circular logic, the answer is no. the trade(s) entered are as a separate position since you can close any numbers of positions on either side as you like. any broker won’t front you the money, at best you can have exchange margin required.

 

[newwurldmn]

we are in a circular logic, the answer is no. the trade(s) entered are as a separate position since you can close any numbers of positions on either side as you like. any broker won’t front you the money, at best you can have exchange margin required.

a proper broker runs your margin against your aggregate position regardless how it’s executed. If the position changes, the margin changes.

The occ has a whole list of how Martin is calculated for various option spreads.

here is the rules based margin for interactive brokers:
https://www.interactivebrokers.com/en/trading/margin-options.php

 

[mervyn]

a proper broker runs your margin against your aggregate position regardless how it’s executed. If the position changes, the margin changes.

The occ has a whole list of how Martin is calculated for various option spreads.

here is the rules based margin for interactive brokers:
https://www.interactivebrokers.com/en/trading/margin-options.php

portfolio margin may give more leverage but it works the same as reg t, minimum balance is required. can’t trade 4m size with 100k account. that’s that.