Interactive Brokers Requiring Full Margin For Vertical Spreads?

[Con1991]

Hello all

Recently I opened a paper money account with Interactive Brokers, mainly with the purpose of trading options to test strategies etc. Previously, I had traded paper money on Thinkorswim. However due to the fact I live in Europe, I would be unable to open a live account with TD in the future. Hence the choice of now trying an Interactive Brokers account.

One thing I noticed immediately was that when trading options spreads, vertical, Iron Condors etc, the credit received upon opening a trade is not applied to the margin requirements. For example on Thinkorswim if I were to open a 100-wide distance spread, say on SPX a credit spread 11200/11300, max loss is the margin required. So if max loss happens to be zero, so will the margin.

On IB using the same example, when I attempt to do this a message appears 'In order to obtain x position, equity with loan value must exceed margin requirement of x'. This is very frustrating, because it essentially means that one is required to have the full margin of the distance in strike prices. In example above of 100-distance strikes, margin on IB seems to be $10,000. They say it is to comply with regulatory requirements, however it severely limits retail options traders.

For this reason I would choose TOS above IB instantly if I were able to avail of a live account with them in the future. Alas, it is not possible with me being a resident in Ireland. Can anyone explain to me why IB does this with options, and is there any way of changing it? Thank you

 

[Robert Morse]

Hi Con1991- First I want to point out that ES options are in a futures account while SPX are in an equity account. The Reg-T margin for a 100 point long vertical is the value of the spread. The requirement for being short is the difference between max loss and what you sell it for. This should be consistent between brokers. As you are in paper trading environment, it might just be how they display it. We can offer equity/option accounts to EU based traders but not futures.

 

[Con1991]

Hi Con1991- First I want to point out that ES options are in a futures account while SPX are in an equity account. The Reg-T margin for a 100 point long vertical is the value of the spread. The requirement for being short is the difference between max loss and what you sell it for. This should be consistent between brokers. As you are in paper trading environment, it might just be how they display it. We can offer equity/option accounts to EU based traders but not futures.

Hi Robert, thank you for the reply. Yes it is options spreads I am referring to, not futures as that is a separate product I am aware of. So are you saying that IB's margin requirements for a vertical spread is in fact the difference between strikes, minus any credit received?

I have attached a screenshot image of a hypothetical trade on the TOS paper account to demonstrate. 2000/2100 credit spread, limit price set at 100, max loss =0. Therefore margin required to open this trade is 0. This far I have been unable to open a trade in this manner on IB, I have to post the full difference between strikes as margin. Since the IB paper account begins with $1 million, that means one can only open a maximum of 10 spreads until the account grows.

 

[Robert Morse]

I can't speak for them, but that is what I expect all brokers require. When you sell $10,000 credit spread for $10,000, the requirement is $10,000, but the account credit from selling fills that. If you sold the same spread for $9000, $9000 comes from the credit and $1000 from you for margin.

Hi Robert, thank you for the reply. Yes it is options spreads I am referring to, not futures as that is a separate product I am aware of. So are you saying that IB's margin requirements for a vertical spread is in fact the difference between strikes, minus any credit received?

I have attached a screenshot image of a hypothetical trade on the TOS paper account to demonstrate. 2000/2100 credit spread, limit price set at 100, max loss =0. Therefore margin required to open this trade is 0. This far I have been unable to open a trade in this manner on IB, I have to post the full difference between strikes as margin. Since the IB paper account begins with $1 million, that means one can only open a maximum of 10 spreads until the account grows.

 

[Con1991]

I can't speak for them, but that is what I expect all brokers require. When you sell $10,000 credit spread for $10,000, the requirement is $10,000, but the account credit from selling fills that. If you sold the same spread for $9000, $9000 comes from the credit and $1000 from you for margin.

Ok that is clear to me. I have not experienced that on paper money thus far, like I say I receive an order rejection message if I attempt to sell multiple contracts, even if the margin would otherwise be zero. I have received similar messages for Butterfly spreads, Calendars, Iron Condors etc. I am hoping it is just a paper money thing, as I wouldn't want to be hindered by such restrictions in a live account. Thank you.

 

[Overnight]

Ok that is clear to me. I have not experienced that on paper money thus far, like I say I receive an order rejection message if I attempt to sell multiple contracts, even if the margin would otherwise be zero. I have received similar messages for Butterfly spreads, Calendars, Iron Condors etc. I am hoping it is just a paper money thing, as I wouldn't want to be hindered by such restrictions in a live account. Thank you.

Max profit 10K.

Max loss 0.

That's the holy grail. Too bad that does not exist in the world of the real.

 

[earth_imperator]

Max profit 10K.
Max loss 0.
That's the holy grail. Too bad that does not exist in the world of the real.

You are wrong, it very well exists in real! Unfortunately the profit point, let alone the MaxProfit point, is far far away from the current spot... Ie. the best, as well the worst, you would get in practice is just a neutral Nothingburger . Still, not any loss at least .