european style options

[justrading]

Quote from Took2Summit:

Ahh got what you're saying now, no my broker does require margin. But for example if I have 100k account I will have the 100k working for me in trades, then on top of that take 50k of margin to sell very conservative puts, then use the put premium to my liking. Basically I know this brings my risk profile over 100%, but it let's me do it for free without paying margin interest.FYI my goal is 20-25% a year, so not swinging for the fences on this money.

Edit. I know theres other ways to bring risk profiles over 100% without paying margin interest but this is what makes most sense to me and fits my style, I have a very specific plan I'm looking to incorporate next year to see how it works.

Well if you are comfortable with writing options and want to maximise return, I'm not in a position to criticise this.

I can't get over the poor R:R from selling options, which is why I only ever put on the one credit spread. I read stuff or watch a webinar and tell myself this is it, I'm going to put on an iron condor. Then I analyse the R:R, get suitably horrified, and drop the idea. Maybe someday I'll try a single contract, like my credit spread.

Only thing I suggest is look into it further. There is no free money out there, if it sounds good look for a catch.

 

[drownpruf]

Quote from Took2Summit:

Ahh got what you're saying now, no my broker does require margin. But for example if I have 100k account I will have the 100k working for me in trades, then on top of that take 50k of margin to sell very conservative puts, then use the put premium to my liking. Basically I know this brings my risk profile over 100%, but it let's me do it for free without paying margin interest.FYI my goal is 20-25% a year, so not swinging for the fences on this money.

Edit. I know theres other ways to bring risk profiles over 100% without paying margin interest but this is what makes most sense to me and fits my style, I have a very specific plan I'm looking to incorporate next year to see how it works.

I'm not getting you. So you sell $3k in puts and have $103k to sweep? Your broker charges you less in haircut than the premium? Or none at all?

 

[Took2Summit]

Quote from drownpruf:

I'm not getting you. So you sell $3k in puts and have $103k to sweep? Your broker charges you less in haircut than the premium? Or none at all?

Right, no haircut at all. If I can get the premium upfront which I believe ESO offers

 

[justrading]

Quote from Took2Summit:

Right, no haircut at all. If I can get the premium upfront which I believe ESO offers

I'm only familiar with US margin for futures, margin accounts in other countries are a lot simpler minus the nanny state Reg-T stuff, so if I err, forgive me.

You are thinking in terms of a 100K acc. and selling 50K premium. Think in these terms;

- what is the total margin I can get with the 100K acc. given the current positions?

- for the 50K premium, how would that change the margin requirement?

If there is still margin available after opening up the 50K positions and you are withdrawing to reinvest, as far as the broker is concerned you are withdrawing your own funds. If you try to cross the line, the withdrawal will be denied.

 

[newwurldmn]

Quote from Took2Summit:

Right, no haircut at all. If I can get the premium upfront which I believe ESO offers

European options won't save you from a haircut.

The money is in your account and you are allowed to receive
Interest , but you cannot invest that money. Otherwise you could take on infinite leverage.

 

[newwurldmn]

One more comment:

Warren Buffet was able to do this with his infamous long dated short put trade.

He could do it because banks were eager for his business and he had a fortress balance sheet (at least everyone thought so at the time).

I had the privelege of speaking to the guy who had arranged the transaction on berkshire's end and he said they would only trade with counterparties that wouldn't require collateral.

So Berkshire got the premium and didn't have to put anything up for it. Warren could invest that money as he pleased.

He was the only one who had the balance sheet and reputation to do it and after his experience I doubt any counterparty will let ANYONE do it again.

 

[Took2Summit]

Quote from newwurldmn:

European options won't save you from a haircut.

The money is in your account and you are allowed to receive
Interest , but you cannot invest that money. Otherwise you could take on infinite leverage.

got it that is what i was wondering.

thanks for reply