Interactive Brokers Margin

[Kim Klaiman]

@beefcaketrade in case of SPX there is no assignment risk.

The rep keeps repeating that this is how the algo is programmed. I tried to explain to him that this is an obvious bug, but he replied "This is not a glitch on our system. It is how the Algo was programmed and I have verified with our Risk department to see if we may override the Algo Re-classificatio n of the spreads, and that is not possible."

I feel like I'm talking to a wall.

 

[Sig]

Yeah, in this case max loss appears defined.

I wonder if the algos are considering what ifs in case there is assignment if market moves against you?

How does it work when you sell spreads in accounts with enough equity to absorb the spread loss, but if assignment takes place, it could ramp up margin requirements past the equity level in the account?

For example, $5000 account guy can sell one 1350-1300 put spread on AMZN, risking $5K, but if he is assigned, CBOE first has to sell him $135K worth of stock, before he resells at a loss at $130K. But he only has $5K, which means the broker has to lend him $130K from $5K, even if momentarily? Not gonna happen. Technically that breaks margin requirements at assignment, because he doesn't have $135K.

Probably not what this is, because then they wouldn't let you start 5 SPX short spreads, since account doesn't have equity to hold 5 long SPX futures positions at assignment, but it still let the account make that credit spread.

Their margin calculations are screwy with futures and FOPs. For example, you can be long ES and require less margin than selling a naked put of ES, which essentially has similar risk profiles (actually less loss with options when OTM + premium collected). They penalize short options very heavily with the margin system.

This is SPX, it's European exercise, no early exercise, no assignments, cash settled. Could be that IB doesn't grasp that, but not a legitimate reason for their margin settings. It's funny that everyone is assuming Occam's Razor is that it's the customer's misunderstanding, when the truth is that when dealing with IB and SPX spreads Occam's Razor is that it's IB and their almighty and revered Algorithm.

 

[beefcaketrade]

Yeah probably not. Their margin calculations are head scratching when it comes to futures and FOPs.

Even if European exercise, there is still an order to the assignment process right? Will they let a guy with $5K in account hold a 1350-1300 put spread on AMZN to assignment for example? Because the broker has to foot $130K for a split second to settle with the CBOE.

 

[Sig]

Yeah probably not. Their margin calculations are head scratching when it comes to futures and FOPs.

Even if European exercise, there is still an order to the assignment process right? Will they let a guy with $5K in account hold a 1350-1300 put spread on AMZN to assignment for example? Because the broker has to foot $130K for a split second to settle with the CBOE.

SPX are cash settled options, which doesn't involve any delivery of the underlying like a stock option or FOP. The most you could ever lose on a 1350-1300 spread is $5,000, so yes, anyone with $5K should be able to open a 50 point SPX spread at any broker and it will expose the broker to absolutely zero risk under any circumstance.

 

[beefcaketrade]

SPX are cash settled options, which doesn't involve any delivery of the underlying like a stock option or FOP. The most you could ever lose on a 1350-1300 spread is $5,000, so yes, anyone with $5K should be able to open a 50 point SPX spread at any broker and it will expose the broker to absolutely zero risk under any circumstance.

I know the SPX is cash settled, but the FOP on SPX settles with the SPX contract. I think OP sold the April FOPs, so it will be June SPX contract for assignment. Anyway I don't think it's assignment related how the margin calculations were made, because otherwise it wouldn't allow 5X the put spreads in the first place. It's a head scratcher for sure as I'm trying to understand how they work too.

$5K is enough for the 1350-1300 AMZN put spread but not for SPX though. SPX with 250 multiplier on 50 points requires $12.5K. That being said, I'm not even sure if any broker will allow a guy with $5K to hold 1350-1300 AMZN put spread to assignment. That's like lending $130K to a $5K account even for a split second. Probably against regulations too the kind of leverage ratio on that account during the settlement process.

 

[Kim Klaiman]

All contracts are index options contracts, not futures options.

 

[Sig]

I know the SPX is cash settled, but the FOP on SPX settles with the SPX contract. I think OP sold the April FOPs, so it will be June SPX contract for assignment. Anyway I don't think it's assignment related how the margin calculations were made, because otherwise it wouldn't allow 5X the put spreads in the first place. It's a head scratcher for sure as I'm trying to understand how they work too.

$5K is enough for the 1350-1300 AMZN put spread but not for SPX though. SPX with 250 multiplier on 50 points requires $12.5K. That being said, I'm not even sure if any broker will allow a guy with $5K to hold 1350-1300 AMZN put spread to assignment. That's like lending $130K to a $5K account even for a split second. Probably against regulations too the kind of leverage ratio on that account during the settlement process.

SPX options are not options on futures. They are cash settled options on the SPX index. I think you may be thinking these are ES FOPs, they are not. They are a completely different and admittedly somewhat unique animal that CBOE has for a few different indexes. You are paid (or pay) the difference between the index at settlement and your strike price in cash, nothing more. There is no delivery of any underlying, ever!

SPX options are worth $100 per point per contract, so if you have a 5 point spread the most you can gain/lose is $500 and if you have a 50 point spred the most you can gain/lose is $5,000.

 

[weewilly]

So long teenies are now margined at 100k at IB. If you live long enough, you see it all.

 

[beefcaketrade]

Oh, right, nevermind then. In IB, the CME SPX futures share the same symbol 'SPX' as the CBOE SPX index options. I think on the portolfio page, CME's SPX FOP looks similar to CBOE's SPX index options. Both shown as SPX April19'18....

 

[lawrence-lugar]

I tried to to buy 1 Apr SPX

I couldn't believe

I have been with IB for years
I'm seriously considering to switch brokers

My advice to you, KK, is to switch to eTrade. -- So easy a caveman can do it.

Everyone treats IB like it's a Holy Grail trading broker, but I fail to see the automatic Divine light.

Make a move, make a mooooove~...Make ah million dollah mooov
Make Trading Great Again 2018, Kim Klaiman...High-Five`