Collaterizing 'in the money' options

[Denebola]

I had an argument about if it was possible during the lifetime of an option, but before expiry, to collaterize an option that is 'in the money'. That is to borrow against an option, before expiry, that is in the money.
I would like to know if it is possible and how it could be done

 

[rmorse]

Not to my knowledge. Long options create no buying power multiple and must be fully paid for.

Bob

 

[Denebola]

Not to my knowledge. Long options create no buying power multiple and must be fully paid for.

Bob

I am not talking about the upfront cost of an option, I am talking about an option that has been purchased whose relationship to the underlying asset is in the money, within its life cycle, before its expiry. I am asking if such an option represents an asset that can be collateralized.

 

[debitspread]

> to collaterize [sic] an option that is 'in the money'

Well, if you're a big enough account and your bank is in a sporting mood, you can collateralize almost anything in Switzerland.

 

[destriero]

You can collateralize it by spreading it off. But otherwise, no.

 

[destriero]

I am not talking about the upfront cost of an option, I am talking about an option that has been purchased whose relationship to the underlying asset is in the money, within its life cycle, before its expiry. I am asking if such an option represents an asset that can be collateralized.

No, of course not. You can receive a reduction in variation margin in futures options if it moves in your favor, but no, just no.

 

[OptionGuru]

I had an argument about if it was possible during the lifetime of an option, but before expiry, to collaterize an option that is 'in the money'. That is to borrow against an option, before expiry, that is in the money.
I would like to know if it is possible and how it could be done

Options are too volatile to be considered an asset suitable to borrow against. Your alleged ITM option position could easily be OTM the next day.

 

[Denebola]

Options are too volatile to be considered an asset suitable to borrow against. Your alleged ITM option position could easily be OTM the next day.

"Your alleged ITM option position could easily be OTM the next day."
Would such a situation not just trigger a margin requirement. I was arguing from the perspective of a trading structure that uses options to net against other securities.

 

[Maverick74]

I had an argument about if it was possible during the lifetime of an option, but before expiry, to collaterize an option that is 'in the money'. That is to borrow against an option, before expiry, that is in the money.
I would like to know if it is possible and how it could be done

Can't be done.

 

[lawrence-lugar]

KISS: keep it simple stupid