How much margin would be needed for this strategy?

Chuck Krug

Chuck Krug

Long 5 million usd in stocks (market cap 2 billion and up)
1 million usd stocks shorted
Short 38ES
$1 million margin for $6 million in stocks (long/short) using portfolio margin (is this correct?)
$174800 margin for 38ES (4600/contract) (Could bonds be purchased for this amount?)
So $1,174,800 margin in total?
If Mr. Robert Morse has a minute to spare? I believe this is your area of expertise.
Thanks


Asking for a friend
 
This is not an easy question to respond to because OCC margin and Futures Span margin are the maximum you can be offered but most firms have restrictions of some kind above that. Lets separate the equities from the futures. I'll assume this will be for a Customer Portfolio Margin account.
OCC requirement is:
Long 5 million usd in stocks=$750,000 (15%)
1 million usd stocks shorted=$150,000 (15%)

Span Margin for futures
Short 38ES=$174,800 ($4600*38) (In a segregated futures account)You will not be able to use 100% of your account toward this trade. It will vary from firm to firm as to what percentage of your seg account you can place toward one future. You will need a lot more than $174,800 in that account if this is an overnight position.

If the long/short portfolio has a lot of names and they are not hi beta names, you will need more than $900,000 in that account. Let's call it $1mm. The futures account, let say 50% of margin will fly. That will be around $350,000 in that account. You might be able to go higher if the futures account can show a good balance sheet.

Does that help?

Bob
PS I just noticed you are from Europe. Not sure how available PM accounts will be to you. Not every firm will offer them for the L/S equities. Reg-T margin is much worse.
 
900k- 1M for the stock position sounds right
Thanks
The overnight futures margin at Interactive Brokers is 4600/contract for the ES, so yes, 300- 350k, 8k-ish a contract is more prudent.
You are correct that I live in Europe, and have had margin accounts at interacive since 1999, i don't think there is much difference what country you reside in.
conclusion: 1.2 as a bare minimum and probably 1.35M
Thanks,
 
It matters outside IB. Some US broker-dealers won't provide leverage to foreign accounts like Apex Clearing.
 
Thanks again Robert,
Early days, but when I get there it's probably better to use a more local prime broker. I know some people who use SG Newedge and are happy with their services.
 
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