@.sigma question... does portfolio margin give you any margin relief for beta hedging a portfolio with the requisite amount of an delta position on an index ... ie portfolio beta is 315 delta to spx therefore I opened a ticket to paper trade 7 atm 19 Jan SPC puts and I had full cash outlay as the margin , so wondering if I am doing it wrong
Destriero - Butterfly Trades
- Thread starter ironchef
- Start date
Robert Morse
Sponsor
deltaf0rce-Portfolio margin relies on the OCC TIMS method. It segregates positions into product classes. Having one position in say AAPL will not get an offset from a broad-based index where AAPL is highly correlated. You can go to the OCC website and load any position and see what the OCC requirement is. Your broker can require more but not less. https://apps.theocc.com/pmc/pmc.do.
Better than Reg T but certainly leaves something to be desired. Time to treat sophisticated investors like adults.
Flies are for pussies. Straddles are where it’s at!
Straddles are where it’s at until that unbounded risk slaps you into the abyss. Buy some wings Robert, it won’t hurt.
please elaborate what you mean by “buying the ITM option at a major discount, much lower than intrinsic vAlue”?
There’s always a caveat in a trade, so what steps did you take in choosing which strikes guts you’ll short?
Hoping Robert tames his emotions so this thread doesn't go off the rails.
Anywho, lets think about this.
Take the broken-wing fly, then take the 132/231. They are very similar, as we all know. But lets take a lookie...
Broken-wing flies have an "appended wing" attached. Lets say you're looking at the 117/122/127 put fly in $AAPL
Instead of going with the natural, you decide to skew the risk. Thus you sell another put vertical spread (112/117) creating a 112/122/127 broken wing put fly. Now of course this would be initiated as a complete package, not separate orders.
Now notice the +112/-117 put spread is farther out, outside of the fly. Now take a look at the 231 put fly. Start with the natural fly: 117/122/127, but instead of the appended wing outside, just sell it within the body, so you're selling two 117/122 put spreads. The difference is with the broken-wing you are selling it father OTM, while the 231 is closer ATM. And yes, we can break the wing of the 132/231 also, but this is good for illustrative purposes. Understanding the verticalization of vertical spreads will help the neophyte understand the synthetic relations of each leg and body.
Heres an example visually.. using the 106/108/110 natural fly as the example
Anywho, lets think about this.
Take the broken-wing fly, then take the 132/231. They are very similar, as we all know. But lets take a lookie...
Broken-wing flies have an "appended wing" attached. Lets say you're looking at the 117/122/127 put fly in $AAPL
Instead of going with the natural, you decide to skew the risk. Thus you sell another put vertical spread (112/117) creating a 112/122/127 broken wing put fly. Now of course this would be initiated as a complete package, not separate orders.
Now notice the +112/-117 put spread is farther out, outside of the fly. Now take a look at the 231 put fly. Start with the natural fly: 117/122/127, but instead of the appended wing outside, just sell it within the body, so you're selling two 117/122 put spreads. The difference is with the broken-wing you are selling it father OTM, while the 231 is closer ATM. And yes, we can break the wing of the 132/231 also, but this is good for illustrative purposes. Understanding the verticalization of vertical spreads will help the neophyte understand the synthetic relations of each leg and body.
Heres an example visually.. using the 106/108/110 natural fly as the example
are you talking about parity?
It's a reasonable approach in some ways - the stock to index correlations are known to break down (e.g. on company-specific news).
Just as a side note, this calculator also has market-maker and broker-dealer margin (CPM is customer, RBH-BD is broker-dealer and RBH-MM is market maker in account type). So you can actually compare what you'd be posting vs what Citadel would
Robert Morse
Sponsor
You want to use CPM. If you need help using use, email or call me. I was an Option MM. The main difference is that the minimum calculation for a MM is $25/Option while a customer PM OCC requirement is $37.50. They are both risk-based but a "customer" must stay under the haircut. As a MM, my clearing broker at the time - GSEC and before that SLK, allowed me to be 2X the haircut. If I jumped over that, and they were OK with my risk, they were happy to loan me the money for the requirement over 2X at my borrow rate.