Cash/Margin Requirement for Vertical Put Spread

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earth_imperator

Can a kind soul please calculate how much collateral one needs for the following "Vertical Put Spread" trade:
Ticker=UVIX, ExpirationDate=2023-01-20, StrikeOfShortPut=9, StrikeOfLongPut=4,
and "Order type: Net credit" = $3.80
For example using these Bid/Ask data. Thx.

UVIX_1.png
UVIX_2.png
 
earth_imperator said:
Can a kind soul please calculate how much collateral one needs for the following "Vertical Put Spread" trade:
Ticker=UVIX, ExpirationDate=2023-01-20, StrikeOfShortPut=9, StrikeOfLongPut=4,
and "Order type: Net credit" = $3.80
For example using these Bid/Ask data. Thx.

View attachment 291684 View attachment 291685
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I would hope you are not seriously considering such a trade! You are taking a bullish position on a bearish product. The long time frame will likely cause you to deal with the impending reverse splits (one or two perhaps before Jan expiry). The 5-3.80=1.20 does not give a comprehensive understanding of the position.
 
stepandfetchit said:
I would hope you are not seriously considering such a trade! You are taking a bullish position on a bearish product. The long time frame will likely cause you to deal with the impending reverse splits (one or two perhaps before Jan expiry). The 5-3.80=1.20 does not give a comprehensive understanding of the position.
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It's not that an important trade, just a fugging example, as I'm just attempting to learn the maths behind such a vertical trade consisting of multiple legs.
What does your above calculation practically mean? Ie. the 1.20. Thx.
 
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earth_imperator said:
It's not that an important trade, just a fugging example, as I'm just attempting to learn the maths behind such a vertical trade consisting of multiple legs.
What does your above calculation practically mean? Ie. the 1.20. Thx
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K. Your risk is $5.00 but since 3.80 credit received, overall risk should be 1.20 ($120) ignoring assignment and related issues. Note: you can be assigned on that short leg, which could result in temporary need for $900 (but there would be some value in your 4 strike to help you unwind it). Others should be able to provide more clear info on this.
 
Yeah, that sounds right, assuming you could get a $3.80 credit. So BP reduced by $120 plus C&F. And should you ever get assigned, just close the stock position immediately.
 
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mervyn said:
You can plug the number in your brokerage account to see what it requires, each broker is different.
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Mine unfortunately does not show this info. Only after firing the order you will know whether it accepts it or not :)
Mine did not accept, saying "Order rejected:You do not have enough available cash/buying power for this order", though IMO I have enough settled cash for this trade. I now opened a support ticket there.
 
earth_imperator said:
Mine unfortunately does not show this info. Only after firing the order you will know whether it accepts it or not :)
Mine did not accept, saying "Order rejected:You do not have enough available cash/buying power for this order", though IMO I have enough settled cash for this trade. I now opened a support ticket there.
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The rule of thumb is 25-50% of the value of your short leg, in case you got the assignment and you have to pay up. Marginable securities requirements are different by the broker.
 
earth_imperator said:
Mine unfortunately does not show this info. Only after firing the order you will know whether it accepts it or not :)
Mine did not accept, saying "Order rejected:You do not have enough available cash/buying power for this order", though IMO I have enough settled cash for this trade. I now opened a support ticket there.
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Reading between the lines here, but since I do not know your broker, the rejection reason may also be inaccurate! I think you indicated you only have a cash account, and may not be cleared for trading spreads! So, possible that is "actual rejection reason". Check with your broker to be sure.
 
stepandfetchit said:
Reading between the lines here, but since I do not know your broker, the rejection reason may also be inaccurate! I think you indicated you only have a cash account, and may not be cleared for trading spreads! So, possible that is "actual rejection reason". Check with your broker to be sure.
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Vertical spreads are very well possible to trade in my cash account.
I just haven't figured out yet why it executed, but then got rejected b/c of allegedly insufficient cash.

I just wonder why they have put vertical spreads into the cash account, so that the user can pick and use them.
It must have a reason why it's put into the cash account.
B/c otherwise they simply could have removed or disabled it in a cash account.
And: the above error message could instead say "Vertical spread trading is not possible in such a cash account. Please upgrade your account to a margin account" or so. But it did not say so.
So, some things don't add-up, don't make sense. I just try to find the reason by such experimenting and trying out :)

And: logic tells me that such spread trading (which of course limits the risk) should very well be possible also in a cash account. Why not? Are cash account owners some second class citizens than margin account owners? IMO, there is not any plausible reason for not allowing such spread trading in a cash account.

Am I maybe overlooking something? Can someone think of a rationale reason why vertical spread trading should not be made possible in a cash account?
 
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