FINRA Day Trading Margin Req.

B

barney-

So my broker (Fidelity .. I know .. I know) has to play by the SEC/FINRA rules like anyone else and recently called to remind me of something that I find quite frustrating so maybe some veterans can explain the logic....

So if I open a 10 contract PCLN short vertical spread (lets say last week sometime)

My margin requirement is simply: Strike Difference - Premium Received. Got it.

Which is fine according to Fidelity (according to SEC/FINRA) as long as I hold that trade AT LEAST overnight aka no day trading. Otherwise my margin requirement FOR THE DAY TRADE must be value of the 10 short options on the spread * 15% margin requirement (I think its 15% too lazy to look).

Now what I don't understand is I am technically being penalized for taking risk off the table. If the spread moves materially to my benefit I may want to close it 5 hours after opening it. However, I get hit with a "day trade margin call" since I don't have ~15% of the 1,000 shares of PCLN @ $1,357.50.

Now, if I hold it overnight and deal with headline risk (CEO dies, people realize PCLN is useless website, etc...) I am not hit with what I call a "margin penalty." So by taking risk off the table intraday I am penalized but holding it overnight its fine.

I could sell the spread at 3:55PM Wednesday and close it 9:31AM Thursday and I am fine, but if I do it on 9:30AM Wednesday and close it 3:55PM Wednesday I get hit with a margin day trade call.

Please someone explain the logic.
 
barney- said:
Bumpity bump bump... 170 views and no thoughts!?
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If it was up to me, I'd say sure bring your money even though you don't have 25k to trade. Deposit it as soon as you can. And Fidelity could care less. They'd rather you pay more commissions. It's the SEC that has the problem with it.

I guess they probably intended the rule, when they created it, to protect you.

What I don't get is why it covers some markets/instruments but not others.

Bring your money to the futures market.. no "day pattern trader" limits. Or, if you'd rather lose it at a slower pace, take it to the forex market.

Or, just stick to 3 day trades per week.
 
barney- said:
So my broker (Fidelity .. I know .. I know) has to play by the SEC/FINRA rules like anyone else and recently called to remind me of something that I find quite frustrating so maybe some veterans can explain the logic....

So if I open a 10 contract PCLN short vertical spread (lets say last week sometime)

My margin requirement is simply: Strike Difference - Premium Received. Got it.

Which is fine according to Fidelity (according to SEC/FINRA) as long as I hold that trade AT LEAST overnight aka no day trading. Otherwise my margin requirement FOR THE DAY TRADE must be value of the 10 short options on the spread * 15% margin requirement (I think its 15% too lazy to look).

Now what I don't understand is I am technically being penalized for taking risk off the table. If the spread moves materially to my benefit I may want to close it 5 hours after opening it. However, I get hit with a "day trade margin call" since I don't have ~15% of the 1,000 shares of PCLN @ $1,357.50.

Now, if I hold it overnight and deal with headline risk (CEO dies, people realize PCLN is useless website, etc...) I am not hit with what I call a "margin penalty." So by taking risk off the table intraday I am penalized but holding it overnight its fine.

I could sell the spread at 3:55PM Wednesday and close it 9:31AM Thursday and I am fine, but if I do it on 9:30AM Wednesday and close it 3:55PM Wednesday I get hit with a margin day trade call.

Please someone explain the logic.
More...

You open a trade.
You close a trade and the firm wants you to put up more margin after you close it?

Have you called Fidelity customer service to ask them what is happening?
 
Well, ironically the day trade call was $153k and my trading account is considerably more than that. I also used to be flagged as a day trader but that flag wore off and thus I didn't have to satisfy the day trade call.

It doesn't really protect you, it hurts you
 
newwurldmn said:
You open a trade.
You close a trade and the firm wants you to put up more margin after you close it?

Have you called Fidelity customer service to ask them what is happening?
More...

Right that is the issue. Because if you close a spread the SAME day you open it, it doesn't recognize or calculate the margin requirement even though you have the other side of the spread to cap loses.

So they look at your short contracts and require you to hold or post 15% (I think) of the underlying.

So...
Stock XYZ $100

-10 $95 P
+10 $90 P

It just says ok...

$95 * 10 * 100 = $95,000

Post 15% or $14,250

but if you close it the following day you are just required to hold the spread as the margin req.
 
barney- said:
Right that is the issue. Because if you close a spread the SAME day you open it, it doesn't recognize or calculate the margin requirement even though you have the other side of the spread to cap loses.

So they look at your short contracts and require you to hold or post 15% (I think) of the underlying.

So...
Stock XYZ $100

-10 $95 P
+10 $90 P

It just says ok...

$95 * 10 * 100 = $95,000

Post 15% or $14,250

but if you close it the following day you are just required to hold the spread as the margin req.
More...

I don't follow. You buy a spread. You post margin. You sell the spread and it wants you to post more margin. So you have closed the spread and owe Fidelity more margin?
 
newwurldmn said:
I don't follow. You buy a spread. You post margin. You sell the spread and it wants you to post more margin. So you have closed the spread and owe Fidelity more margin?
More...

Well in that scenario I would be selling the spread (short the NTM long the OTM)

So in that scenario a 10 contract spread with a strike spread of $5 would be a margin req of $5,000 -- since that is the max loss if it blows past the short and the long.
 
barney- said:
Well, ironically the day trade call was $153k and my trading account is considerably more than that. I also used to be flagged as a day trader but that flag wore off and thus I didn't have to satisfy the day trade call.

It doesn't really protect you, it hurts you
More...

Hmm. Something doesn't sound right. Maybe the 90 day freeze fell off but the flag didn't? Otherwise, why are they calling it a such?

If a broker started jacking around w my trades, I'd move it out.
 
barney- said:
Well in that scenario I would be selling the spread (short the NTM long the OTM)

So in that scenario a 10 contract spread with a strike spread of $5 would be a margin req of $5,000 -- since that is the max loss if it blows past the short and the long.
More...

What did Fidelity say when you called them?
 
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