IB - Portfolio Margin have higher requirement than Reg-T!!!

Quote from ofinance:

To hold 3 short strangles on GOOG, SPY and AAPL with a net credit of $4,600, Reg-T required margin is 24k while for Portfolio Margin its 35k. Hope some IB representatives can shed some light on this, it really doesn't make any sense that PM have higher requirements than Reg-t, in the worst case scenario it should have the same requirements as reg-t. You don't go through the hassle of applying for a pm upgrade and wait for approval just to to get less buying power than before :confused:
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A lot has already been said as to how PM is calculated. I don't use IB but I will add that trading short strangles on stocks like GOOG and AAPL in a PM account would not surprise me to see your margin requirements higher than usual. Since PM is risk based, these are stocks that tend to move in dramatic fashion.

Trade what you are comfortable with, but I must say, these are trades that can desimate your portfolio and you will not have PM for long. I hope you can see how. Use PM the right way, keep your account alive and growing. I would use back ratios spreads on those stocks, then take a look at what your margin requirements will be.
 
It's not inconceivable that this could happen and it really depends on your exact positions. If you post the details of your positions (i.e. strike, expiry, etc) I can work out the Portfolio Margin Calculation for you and repost the results.

My guess here is that there is an IB position concentration penalty at work here, but we'll need to perform the full Portfolio Margin calculation before this conclusion can be reached with any certainty.

So, for example, at a 15% positive move in goog (i.e. the stess move for individual stocks) plus some sort of shock to implied vol (part of IBs methodology) one could imagine that the loss on your short strangle could become significant, but not as high as the 35k requirement suggests.

Here is the thinking behind this assertion:

The net delta of the strangle position would start to move to maybe somewhere around 0.7 (just a guess at this point) due to the imp vol stress move and the 15% stress move on the goog price. This means you would be incurring a loss at about 0.7 multiplied by the stress move (0.7 * 15% = 10.5%). GOOG is trading at around $632 and $632 times 10.5% equals $66.36. We then multiply this by 100 shares and end up with $6636.

So, $6636 should be the PM margin requirement just for the GOOG strangle. Using similar calcs for the other positions (and making adjustments based on index type, etc) I get:

AAPL = $6,405
GOOG = $6,636
SPY = $767

This means the total Portfolio Margin requirement should be somewhere around $13,808. So, yes, I think there may be some IB position concentration pixie dust being sprinkled onto your margin requirements.

-Jason
 
Quote from Jay_Ap:

It's not inconceivable that this could happen and it really depends on your exact positions. If you post the details of your positions (i.e. strike, expiry, etc) I can work out the Portfolio Margin Calculation for you and repost the results.

My guess here is that there is an IB position concentration penalty at work here, but we'll need to perform the full Portfolio Margin calculation before this conclusion can be reached with any certainty.

So, for example, at a 15% positive move in goog (i.e. the stess move for individual stocks) plus some sort of shock to implied vol (part of IBs methodology) one could imagine that the loss on your short strangle could become significant, but not as high as the 35k requirement suggests.

Here is the thinking behind this assertion:

The net delta of the strangle position would start to move to maybe somewhere around 0.7 (just a guess at this point) due to the imp vol stress move and the 15% stress move on the goog price. This means you would be incurring a loss at about 0.7 multiplied by the stress move (0.7 * 15% = 10.5%). GOOG is trading at around $632 and $632 times 10.5% equals $66.36. We then multiply this by 100 shares and end up with $6636.

So, $6636 should be the PM margin requirement just for the GOOG strangle. Using similar calcs for the other positions (and making adjustments based on index type, etc) I get:

AAPL = $6,405
GOOG = $6,636
SPY = $767

This means the total Portfolio Margin requirement should be somewhere around $13,808. So, yes, I think there may be some IB position concentration pixie dust being sprinkled onto your margin requirements.

-Jason
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Do you mean that with 3 strangles you get 35K margin requirement but with 5 strangles it would have been only 15k or 16K? if thats the case one can add 2 more strangles, lets say on DELL and MSFT and have less cash tied up but that doesn't make sense considering most of these stocks are tech stocks and move the same way, also, with 5 strangles there is always more delta mouvement than with 3.
 
Quote from ofinance:

Do you mean that with 3 strangles you get 35K margin requirement but with 5 strangles it would have been only 15k or 16K? if thats the case one can add 2 more strangles, lets say on DELL and MSFT and have less cash tied up but that doesn't make sense considering most of these stocks are tech stocks and move the same way, also, with 5 strangles there is always more delta mouvement than with 3.
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Well, that may or may not be the case. I would need you to give me the exact details of the positions so I can run the numbers.

But yes, if a position concentration penalty is at work here, then you would see a lower margin requirement if you split the same exposure across a greater number of underlyings. While they are all exposed to what I would call the "tech sector factor", adding underlyings and reducing the exposure to each will diversify the company specific risk and thus lower overall risk considerably. To see this in action, just imagine what your loss would be if GOOG went bankrupt all of a suddent Enron style. Your loss would much greater than 35k. While that seems almost impossible, remember that people said the same things about GM and Lehman.
 
you know even though i have reg t margin and alot of this stuff doesn't apply to me as much.. margin changes mean everything .. so i keep a running tab of what i need to keep in cash reguardless of what it says i have available to invest.. i figured out quick that was a way to get washed out.. nothing like mental accounting fraud on yourself.. haha thinking you have more then you do just cause securities swing around..


Quote from Put_Master:

<<< Stranger than that is when you see you have 20K extra cash for trade and none of the underlying changes and the next day, you see you have -15K cash !!. >>>

Speaking of strange margin occurances, here is one for all spread traders to be WARNED about:

I initiated bunch of bull put spreads a long time ago, with the knowlege that a specific amount of margin would be set aside for each trade via their computer. Namely the gap between my strikes times the number of contracts. Simple.
Well guess what!
Some of my spreads went really deep OTM, which is a good thing.
But that resulted in the computer lowering my margin cash requirement, as it automatically switched over to another formula to calculate my new updated margin requirement.
Isn't that a good thing???
NO!
Because no one informs you that the computer lowers your margin requirement when your trade goes super deep OTM.
Therefore, I thought I had more money to spend, which i had previously missed..... which I then did, on additional spreads.

But sometime later, those deep OTM spreads were not quite so deep, and the computer switched back to the original margin requirement formula.... resulting in an unexpected margin call for me.
At the time, I made the mistake of using all my cash for spreads, thinking there was no risk for margin calls, as no margin was used for the spread trades. Only cash via the spread gap times # of contract formula.

When I told Schwab about what happended they informed me there was no way to stop the computer from doing that, as prices went in and out of being deep OTM. They said the computer thinks it's doing you a favor, by freeing up more money for you.
I said it would indeed be a favor if i was alerted to what was going on. But I just thought I had extra money to spend that I had earlier missed. Turns out the only way to stop the computer from doing you a "favor", is to change your status from being a level 3 trader to a level 2.
In other words, no more ability to do naked put or call type strategies.
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you know i do wanna say something... if you guys are investing hundreds of thousands of dollars and levering up 5:1 don't you think you should really know the mechanics of this intimiately.. .meaning.. just as much as you model your trades for profit and loss.. you should model every trade as it effects your margin requirments in all senerios? To me the fact that one can lever up that high is wonderful.. i currently only have 20k to invest and therefore i obviously can't have Pmargin but i can tell you one thing.. hopefully if/when i do it get it i'm going to know the risk arrays and i'm damn sure going to model when the changes happen and how.. what a recipe for a blow up not knowing.. i've learned a few things from this thread..
people have more money then sense sometimes..
what you don't know will blow you up..
portfolio margin accounts are sometimes given out to people that don't deserve them haha...

IB will tell you exactly why the requirment is the way it is.. tell them how its calculated.. WRITE THAT EQUATION DOWN.. and any of the other risk array equations and freaking keep them on your worksheet! if you don't know where the line is that will blow you up.. IT WILL FIND YOU..
 
Thanks for the thread.

I have portfolio margin a/c.

My question is : Can I calculate margin already used position by position ? The idea is to eliminate high usage positions for more efficiency. Thanks
 
Quote from osho67:

Thanks for the thread.

I have portfolio margin a/c.

My question is : Can I calculate margin already used position by position ? The idea is to eliminate high usage positions for more efficiency. Thanks
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i like that question.. more of a modeling of trade efficiencies related to margin impact
 
Quote from cdcaveman:

i like that question.. more of a modeling of trade efficiencies related to margin impact
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Well. IB can give realised profit, unrealised profit , net liqidation value position by position - so why not margin usage position by position,

Sometimes when I do a naked e.g. on FAS margin requirement is very high. But what about positions I have already done. ?
 
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