Hello,
I have a question about covered call using CFDs instead of stock. I will try to give an example.
Lets assume the account has $1000 in cash and the broker requires 10% in margin for the CFD.
I use IB(interactive brokers)
1. Buy 1 CFD of XYZ for price $100
2. Sell 1 Call at strike 102 for premium $2
The CFD controls 100 shares which has a total worth of 100 shares x $100 = $10,000
Margin requirment is then: $1,000 which exists on the account
We also receive a premium of: $2 x 100 = $200
_______________________________________________
Now I have 3 questions below. What I wonder about is how the margin works for a trade like this?
1. Is this trade possible to do?
2. If the the price goes to $103 at expiration, we can say that we would be "called away". However, we do not have any shares. Does this mean that we would be short 100 shares of XYZ. If that is true, how would that scenario work as we don't have any margin left aside from the premium of $200.
Owning long stock might require margin but I wonder if borrowing shares(short) perheps has other margin rules?
(To mention, - I don't want to own the shares so if I got short 100 shares, I would want to buy back the shares the second after to not be either long or short any shares. At this point, I also would want to sell the CFD)
3. To mention, my idéa would be to have a stoploss around price $98 as close to breakeven as possible, - to buy back the option and sell the CFD. Does the margin requirements change at this point?
Thanks
I have a question about covered call using CFDs instead of stock. I will try to give an example.
Lets assume the account has $1000 in cash and the broker requires 10% in margin for the CFD.
I use IB(interactive brokers)
1. Buy 1 CFD of XYZ for price $100
2. Sell 1 Call at strike 102 for premium $2
The CFD controls 100 shares which has a total worth of 100 shares x $100 = $10,000
Margin requirment is then: $1,000 which exists on the account
We also receive a premium of: $2 x 100 = $200
_______________________________________________
Now I have 3 questions below. What I wonder about is how the margin works for a trade like this?
1. Is this trade possible to do?
2. If the the price goes to $103 at expiration, we can say that we would be "called away". However, we do not have any shares. Does this mean that we would be short 100 shares of XYZ. If that is true, how would that scenario work as we don't have any margin left aside from the premium of $200.
Owning long stock might require margin but I wonder if borrowing shares(short) perheps has other margin rules?
(To mention, - I don't want to own the shares so if I got short 100 shares, I would want to buy back the shares the second after to not be either long or short any shares. At this point, I also would want to sell the CFD)
3. To mention, my idéa would be to have a stoploss around price $98 as close to breakeven as possible, - to buy back the option and sell the CFD. Does the margin requirements change at this point?
Thanks
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