Lower margin requirements
- Thread starter met1989
- Start date
You could always go to the synthetic long stock. Dec long call/short put @358 will margin at about $8k (IB), vs $18k for 100 shrs.
Could also just go with a long ITM call. Cost will be whatever date and delta you are looking for.
Could also just go with a long ITM call. Cost will be whatever date and delta you are looking for.
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SPY = 358.38 x 100 = $35,838 x 50% = $17,919 (margin requirement)
SPY 340 Call (Nov. 20) = 18.58 = $1,858 (margin requirement)
**SPY Call has $20 premium which will deteriorate prior to expiration on Nov. 20th.
**Premium can be reduced to zero if you go deeper ITM but will require a bit more cash.
**Profit potential the same minus the $20.
**Max. loss on 340 Call = $1,858.
How much more difficult is it to practically exit the option position easily at good prices vs owning the stock?
SPY options are very liquid so easy to exit at a good price. Some traders day-trade the options because of the good liquidity and tight spreads.
Makes sense, though for lower volume instruments, ie silver miners, guessing this is going to be very different?
Easiest way is to look at the options quotes.
Check the OI and bid/ask spread.
Also depends upon how often you plan to enter/exit. Paying the spread daily/weekly might be too painful but paying it monthly not so bad.
Gold miners (GDX) have decent OI/volume and spreads that aren't too wide (.05-.08 near-the-money for $38 stock).
Your cash position is another factor. Are you buying on margin? If so, you can reduce your borrowing costs by converting large stock positions to options. If cash is tight use options.
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How would you convert a stock position to options? How do you suggest to choose how far ITM/OTM strikes?
Comparison:
GDX stock (gold miners)
$35.55 x 100 shares = $3,555 investment
GDX Call spread (Jan 15, 2021 30/45 Call spread)
Buy 30 Call 5.70
Sell 45 Call .17
Cost = 5.53 = $553 investment
Max loss = $553
Max profit = $947
**Selling the 45 Call removes any premium so no time decay.
**If you didn't sell the Call you'd pay $15 to own the position till Jan 15.
**Buying a Call deeper ITM will remove all the premium so you have unlimited profit.
**Being long a Call rather than a Call spread is easier to take profit or adjust if price moves in your favor.
**The quotes on this screenshot aren't completely accurate as market is closed. Just wanted to give an example.
**I try to pay intrinsic value so go just deep enough to pay no premium or deep enough to sell a Call OTM to cover the premium paid.
**Main purpose is to show how you can spend less $$ while having similar/same profit potential.