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How do holds work when selling naked options?
- Thread starter TWORIP
- Start date
Quote from mike007:
I already know how to do it. MAX LOSS is my margin requirements.
1. At what point in time you calculate your max loss? I am assuming that you mean at expiration. If that is what you mean, your broker and the SEC do not think like that. They calculate the margin (for certain positions) not at the end but during the position life. You may think this is not important for something like a put, but if you do it prior to expiration you should not use only price to determine the max loss (or any other figure to use as the max not to be exceeded) but also the other variables.
2. Going back to the margin on the put, run the formula not at the end but during, play with extreme values to understand things better.
3. If you think that the formulas are not imporant the way they are, ask your broker to add this to the put margin formula for instance: Max (k, CURRENT formula) where K is the strike. If the added term of strike value is not imporant, your broker should be able to accomodate you.
The reality is that the broker (not the guy who answers the phone, but the man who owns the license) will immediately have his antenna up as he will know that only a shark asks the question you would have asked.
He will not do it, because he knows the implications of what you are asking him to do. Those implications are probably taught to him in special classes on margining in SEC courses, etc.
4. While speaking to your broker, also ask him why in the hell he puts in the formula a 2.50 minimum per share in margin calculations.
Why $2.50 in there, and why not another number?
This later point should be answered quickly by any person who aspire to be an expert. If a person cannot answer it, then sorry they do not know their area.
PS: there is a reason for the $2.50, but not any other number.
5. Let me stop here, but I want to say that you need to study the margin formulas not to run the numbers but to understand the reasoning and some hidden aspects to them. In options, if you can see something that others do not see, you can turn a profit. Study your margins very seriously.
dynat:
I am assuming that this comes from you:
"Agree that worrying about this is nonsense. but when RFT tells me I am wrong about his 'maths' when he cannot explain his thought in understandable English, I'm going to respond."
If there is anything that I wrote in this thread you think is wrong, contains mistakes/etc, just write it down and give a counter-example that shows I am wrong. I know you cannot, because I already have an established proof.
Your response to my first post discussed some unrelated questions. You were arguing that the losses and gains of CC and short put will be the same, when the issue was a margin issue and its potential effect on the time of the exit of the position (forced exit vs. end of time exit).
I did not read all what you wrote afterwards because most of it is out of topic and/or missed the point, which suggested to me that you did not understand what was the point being discussed. Your comments sometimes remind me of the student who answered a biology question on elephants by discussing flys. When asked why he was off topic, his answer was that the flys sometimes sit or get close to the elephants, so discussing biology of insects is a good answer to the exame question on biology of elephants.
I am assuming that this comes from you:
"Agree that worrying about this is nonsense. but when RFT tells me I am wrong about his 'maths' when he cannot explain his thought in understandable English, I'm going to respond."
If there is anything that I wrote in this thread you think is wrong, contains mistakes/etc, just write it down and give a counter-example that shows I am wrong. I know you cannot, because I already have an established proof.
Your response to my first post discussed some unrelated questions. You were arguing that the losses and gains of CC and short put will be the same, when the issue was a margin issue and its potential effect on the time of the exit of the position (forced exit vs. end of time exit).
I did not read all what you wrote afterwards because most of it is out of topic and/or missed the point, which suggested to me that you did not understand what was the point being discussed. Your comments sometimes remind me of the student who answered a biology question on elephants by discussing flys. When asked why he was off topic, his answer was that the flys sometimes sit or get close to the elephants, so discussing biology of insects is a good answer to the exame question on biology of elephants.
Quote from dagnyt:
How would you know if you did not read it?
I like your earlier suggestion that you would stop posting. Please consider that again.
Mark
"I did not read ALL what you wrote afterwards because most of it is out of topic and/or missed the point,.."
You do not understand the word ALL ?
One does not need to read everything to reach conclusions on a certain topic.
Like you do not need to listen to ALL what a a liar says to conclude that he is a liar.
You need to understand the difference between tests of exclusion vs. tests of inclusion/confirmation.
That is the reason why I wrote in response to one of your posts (maybe in another thread) that math/logic/etc may be a bit over your head.
BTW if you want to disprove this: "If A is true, then B is true", all you have to do is to find a counter example, meaning a case where A is true but B is not.
In the other thread that you were writing is that B is not true because A is not true. That is a wrong proof. To make thigs clearer to you, I gave the example of Pythagoras theorem, but apparently your did not learn anything from it as you are repeating the same logic mistake again (read below).
Following your logic of disproving, you were say that Pythogoras is wrong because his result does not apply to a non-right triangle. (A in this case is right triangle, and B Pythogoras result).
Take a course on logic. Maybe you did not need it in chemistry, but it is necessary in quantitive/rigorous analysis.
PS: the ALL example above also falls under the same error you have been making. So it is a pathological case.
To understand it, try to find the equivalent of A and B, and apply it to your understanding of posts and reaching conclusions. You need the correct method of analysis, and you have to abide by the conclusions of the analysis (even if it is not what your ears like to hear).
Quote from riskfreetrading:
1. At what point in time you calculate your max loss?
The margin requirement for a credit spread is the maximum value that the spread can reach at expiration. The cash collected when selling the spread can be used to meet that requirement.
Max value at expiration, minus cash collected is the MAXIMUM LOSS for the spread.
When using RegT margin, that MAX LOSS never changes.
If the short option is a naked put, then the MAX LOSS occurs if the stock reaches zero, and is equal to the strike price, less the premium collected.
Mark
Quote from riskfreetrading:
"I did not read ALL what you wrote afterwards because most of it is out of topic and/or missed the point,.."
I get it now. Sorry for the confusion.
It's not that you didn't rea all of my post, it's thaty ou failed to comprehend any of it.
Thanks for the explanation.
Mark