How does selling options affect margin?????

S

spinn

I know we are all sick of people calling tops......but a lot of my charts are telling me that things are 2-3 weeks from going down.

With that being said, I would prefer to sell options short to enter. I would rather have the time premium work for me rather than against me.

Can someone explain margin for the selling of calls?

For example....I am considering selling IWM Jan 72 calls which are priced at $5.90. How will that affect my margin at IB?

I am also willing to consider other strategies but my method is pretty good at entry. I recently was talked into doing a bull spread on OIH. I am up $13 on the stock but the bull spread is only up about 60 cents...ugh.

I have never been that into "hedging". I always felt if the risk was to great, I should enter a smaller position, not hedg it but thats another topic.
 
Margin requirements will vary based on the underlying. A naked IWM 72 call will consume ~ 5K of margin.

And now if I may interject some opinions ...

This is much more of a time to BUYING premium, not selling it. The implied volatilites are very low on the indexes. If you're speculating on a downward move, vols will typically increase rapidly and your short option will lose money and your longs will gain. Why not buy a put?

Second, I know the feeling is strong to predict a sharp downturn (I've got some puts myself that are bleeding), but I think shorting this upward momentum is taking on serious risk. If you're hell bent on selling calls, at least protect yourself (and your margin reqs) by spreading. Sell a 72 call and buy a 75 call as a bear call spread, for example.

Just my opinions.

Quote from spinn:

I know we are all sick of people calling tops......but a lot of my charts are telling me that things are 2-3 weeks from going down.

With that being said, I would prefer to sell options short to enter. I would rather have the time premium work for me rather than against me.

Can someone explain margin for the selling of calls?

For example....I am considering selling IWM Jan 72 calls which are priced at $5.90. How will that affect my margin at IB?

I am also willing to consider other strategies but my method is pretty good at entry. I recently was talked into doing a bull spread on OIH. I am up $13 on the stock but the bull spread is only up about 60 cents...ugh.

I have never been that into "hedging". I always felt if the risk was to great, I should enter a smaller position, not hedg it but thats another topic.
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spreadn00b, got a good point. If the correction does come then IV will rise, which means that your short calls won't be making as much money as you like. IV is really low right now, just buy a put or sell a call vertical to at least partially hedge your vega.
 
Thanks I did notice that. The premium on the 72 option seemed to be only $1.50 and that is for a call that is 3 months out and $4 in the money.

And I am with you on calling tops....but my method is telling me this may be it, everything is telling me these will be good but I do use tight stops.

And how did you determine the margin requirement to be $5000? I have an IB account with $2500 in it and place an order to sell a call and the system did not reject it.
 
If you want to call tops, then do it with long options please.....

selling naked calls into a rally makes no sense no matter how overbought you think we are :).

The market is always right ;)
 
Ah good, you're using IB so I can tell you exactly how to do it. Start to place the order, then right click on the order (before sending it!) and there should be a menu item that says "Check Margin". That told me $5K.

Quote from spinn:

Thanks I did notice that. The premium on the 72 option seemed to be only $1.50 and that is for a call that is 3 months out and $4 in the money.

And I am with you on calling tops....but my method is telling me this may be it, everything is telling me these will be good but I do use tight stops.

And how did you determine the margin requirement to be $5000? I have an IB account with $2500 in it and place an order to sell a call and the system did not reject it.
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Hmmm ... maybe I entered a different option by mistake. I guess the important thing is that now you can do this. Sorry about the bad margin req value though. :confused:

Quote from spinn:

Strange then....it tells me $2128
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