Extremely High Margin Requirements on Back Months - Interactive Brokers

J

jones247

I'm not sure if this thread belongs here or in the Options forum; nonetheless, here is the "CRAZY" margin requirement imposed by Interactive Brokers...

I tried to enter a far back month Iron B-fly (Dec 2013) on ES (S&P E-mini). The Initial Margin for 10 contracts on this transaction was more than $58k, with a Maintenance Margin of only $1k. This is simply INSANE!!!!!!!!! If this transaction was for June 2013, then the Initial Margin would have been less than $2k.

The $58k Initial Margin is about 5 times more than my max potential loss on this trade. Although the Maint. Margin is only $1k, it does not matter, as IB will not allow you to enter the position without $58k per 10 contracts of Margin.

I called IB about this silliness, trying to get some clearity and hoping that there's a way to bypass this foolish IM of $58k. The customer service rep stated that because it's the futures market, there may not be any market liquidity for back month contracts, as some futures products are several years out. I explained that the contract was only 7 months out, not years.

To make it even more frustrating the ETF equivalent (SPY) DO NOT have such burdensome margin requirements for Dec 2013 with Portfolio Margin.

Does anyone know how to get around this dilemma???? I don't want to open up another account with some other Broker; however, if I have no choice then that's what I will do, unless all Brokers have this ridiculous policy of assessing a margin requirement that's 5 times greater than the potential max loss for back months with 6 to 7 month til expiration...

Thanks for any feedback & help you can provide...

Walt
 
Trade SPX. No haircut beyond the debit risk and even less under PM-treatment. Of course there is no logic behind the decision, but you're still receiving SPAN on the ES fly.
 
I agree and that's why I switched from them some time ago.

You will not sway them. I tried.

If you have a large position that includes deferred month options in soft commodities, you will also find that the margin requirement swings throughout the day because they use a model for deferred options pricing which is often simply wrong.

I think they regard futures options as basically too risky except under tight constraints, and have simply chosen to take a different, more conservative approach from everyone else, even if it means loss of business (which I am sure it has meant).

Fine, there are others. I doubt that any professional commodity futures options traders are still with IB.

I think IB is absolutely great for stocks though.
 
Quote from ids:

There is a logic here. We do not like non liquid contracts on accounts of our customers.
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Which is your prerogative.

However, deferred months of the same future are usually *less* volatile than prompt months (where you can have supply squeezes etc.).

Granted, the options are thinner in deferred months but in my opinion arbitrage will keep them reasonable. I realize that IB has simply chose not to rely on that, and I can understand why. IB wants to be able to value each option at all times intraday for purposes of account valuation, and is simply unable to do without a large safety add-on to margin that because of wide or missing bid-ask quotes in deferred months.

Different firms use different approaches to risk management.
 
With all due respect, the contract in question is VERY LIQUID, even far month contracts... I'm talking about the E-mini, not pork bellies... Plus, even if it was a situation of IB worrying about liquidity on contracts 6 months out, then simply set the Initial Margin requirement at the max loss... Not 5 times the Max loss... It looks very suspicious when IB is going thru such lengths to disallow traders from entering reasonably safe positions... It's as if IB knows it is unable to have The Timber Hill group take the other side of the trade!!!!!! verrrrry suspicious...!!!!


Quote from ids:

There is a logic here. We do not like non liquid contracts on accounts of our customers.
More...
 
LMAO.... I dont trade options, but to me this is simple risk management... IBKR is under no obligation to expose themselves to risk if they so see fit... they follow their risk management rules, they play conservative, regardless of how "wrong" the model they might be using is or is not...

you are complaining about the initial margin, which is nothing more than initial... so I gather you dont have the funds on the account? because if you did, what is the point of arguing and worrying given that once you are on the trade the margin drops?

anyhow... like some have said... if you dont like how they manage their risk, just search for another FCM that might... heck, check AMTD(aka TOS)... or OM... they might take your business and be more aggressive with their margin requirements...

IBKR is not the only shop in town...
 
Quote from jones247:
----With all due respect....
----I'm talking about the E-mini, not pork bellies....
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FWIW, bellies were delisted nearly two years ago. Lumber or orange juice would have been a better comparison. :cool:
 
Quote from nazzdack:

FWIW, bellies were delisted nearly two years ago. Lumber or orange juice would have been a better comparison. :cool:
More...

My God! The Dukes are going to corner the entire frozen orange juice market!
 
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