Making 40%/year selling SPX options, and huge SPX Margin/BP differences between TDA and IB

[guru]

This is just another one of many discussions on Facebook where no one is able to explain why these margin/BP differences are so large, especially given the fact that the manager running one of top small hedge funds posts most of his trades online every day, selling hundreds of naked SPX DOTM calls & puts expiring within a day or two, but the qty he's selling cannot be explained by the available margin/bp (at TDA).
He also sells naked equity options daily, but also with qty that cannot be explained by available bp/margin, while SPX is a big portion of that, or at least a representation of how much leverage is needed for these types of trades.

I checked four different TDA and IB portfolio-margin accounts, and each one requires very large bp/margin to sell just 10 sample SPX calls & puts, though with IB using up half of the buying power that TDA uses, yet the above person/fund uses TDA.

The question is how does he get sufficient margin/bp to sell that many naked calls and puts.
And how does RegT plays into these differences between IB and TDA?

Rick, the fund manager, is a great guy, btw, posting his trades and offering help to everyone, but also can't explain why he's able to trade those sizes, just saying that some of his positions are offset by others, but he doesn't have long positions except on occasions. He mainly sells worthless out-of-place DOTM options that pop-up with bids at $0.05-$0.10 where someone may need to close their position to cover their margin requirements, close a spread, close a calendar leg, roll a position, etc.

 

[Amahrix]

He is a ticking time bomb. He has lost his mind. He will end up paying a lot for those (temporary) gains.

Sorry I couldn't answer your question as to the margin etc.

 

[gaussian]

He mainly sells worthless out-of-place DOTM options that pop-up with bids at $0.05-$0.10 where someone may need to close their position to cover their margin requirements, close a spread, close a calendar leg, roll a position, etc.

This sounds remarkably familiar...

 

[guru]

He is a ticking time bomb. He has lost his mind. He will end up paying a lot for those (temporary) gains.

Sorry I couldn't answer your question as to the margin etc.

On the surface this looks crazy, but he’s been doing this for many years and went through some major setbacks, which builds resilience and experience. He also sometimes gets out with losses, basically knowing when to run, and goes very far OTM when possible, as some 5 cent options show up below circuit breaker levels during high vol. So at least he may be the best at selling this cheap crap

 

[Amahrix]

On the surface this looks crazy, but he’s been doing this for many years and went through some major setbacks, which builds resilience and experience. He also sometimes gets out with losses, and goes very far OTM, as some 5 cent options show up below circuit breaker levels during high vol. So at least he may be the best at selling this cheap crap

Guru, it’s those very options (0.05c) that explode to few hundred dollars. I’ve witnessed them. If he is deploying this daily, it is equivalent to 24/7. And we know that eventually those options, will explode wildly against him. It absolutely will. It is the very nature of it. I do not buy and will never buy any defense to a undefined risk strategy.

 

[guru]

Guru, it’s those very options (0.05c) that explode to few hundred dollars. I’ve witnessed them. If he is deploying this daily, it is equivalent to 24/7. And we know that eventually those options, will explode wildly against him. It absolutely will. It is the very nature of it. I do not buy and will never buy any defense to a undefined risk strategy.

The funny thing is that he also runs margin desk for a small broker, getting phone calls from people who got margin calls and need to liquidate their positions or accounts...

And the price of those DOTM options going from $0.05 to $2.00 may not be that important because the margin use doesn't depend on option price too much, but it depends on how much risk you carry.
CBOE margin calculator shows pretty much the same margin on SPX puts, whether the option price is $0.05 or $2.00. Only when SPX drops by, say 5%, then the risk grows and the required margin may go up from $3M on 100x 2700-strike puts to $3.80M.
So this ties back to my previous question: how he may be able to have so much margin available that he has even extra room for those swings.
He trades those options at TDA where there is no room for favors in terms of margin.

He does trade a few other things, including a little more of high margin stuff like shorting UVXY or TVIX. Here is another interesting post of his from last October:

Anyway, he is a very open and friendly guy, so sometimes I and others are scared for him too. Sometimes he asks to borrow Vaseline

I wouldn't dare to trade that way, but I trade a lot of SPX ratio spreads below 2000-strike that may even make a little extra profit when SPX drops (if you know what you're doing), but not always, and sometimes I wish I had more margin for safety. Thought about moving more cash to TDA, but I'm only finding that they offer even less buying power than IB for this stuff. Unless I'm missing something.

 

[Rick Langer]

Gentleman,, the missing piece of your puzzle is PORTFOLIO MARGIN,
i do not have standard reg t , if you do not know about pm,, heres a link for some explanation, https://en.wikipedia.org/wiki/Portfolio_margin ,, , further more, my 25 years at this game has led me to my approach which is specific, very far away strikes with very short DTE, i bascially provide a service to everyone who does credit spreads, i furnish good prices on the outer legs,, i started in 1994 with 38k doin OEX spreads ,,then it got real serious in 98 as a SOES bandit to 2002 and in 2006 the gates of heaven opened up, i got portfolio margin, GAME CHANGER.. in addition to my approach came weeklys around 2010,, i have taken 4 major hits since 1994 -- 1998,2010-2015 and 2018 18-30% of my portfolio , it just takes a few months to make it back and i still managed to Beat the S&P since 1998,,, as for the non option position of TVIX ,, since that COntango stock floated in 2009 i have shorted 100- 3000 shares a day every, it a depreciating asset just look at the 10 yr chart, it just keeps reverse splitting, again, major mkt drops this can get a lil hairy,, we keep at it,, look im not selling any thing, im not pitching anything,, and NO I did NOT LOSE MY MIND, and im NOT a ticking time bomb , im focused , i have refined my approach to fit my stocks and my comfort level, and that took time ,many years ,,im always learning like everyone else here , the differences with IB and TD is concentration risk,, yes 10 contracts may be less margin at IB,,but when you start to do size 1000 contracts TD risk profile are more favorable , the FUND im referring to is called FOSTER GLENWOOD and we have 3 accounts that make up the account , TD ,IB and ICBC,,,, we know what positions works best at each firm,,,you have to have a strong work ethic, and a really positive attitude and the smarts to be creative to find all the hidden high probability . positions, also,, working for a small firm margin .risk and trade desk, along with helping people im blessed to get to see thousands of clients accounts and how they make or lose money,, the ones who make money only trade 1 to 5 names, the rest who trade many names ,mostly lose money,, as for the and i dont think i ever ask for vaseline , im just addressing all the unknown chatter here,, when asked i DO explain in detail of any position i have, ,,i DONT bull shit, i dont play games I DONT advise ,,i TRADE and i help others ,if you wish to know more feel free to ask, i can be found on the options traders forum on Facebook,

 

[qlai]

just saying that some of his positions are offset by others, but he doesn't have long positions except on occasions.

@Rick Langer , thanks for explaining and offering to answer questions. So is above statement correct? If so, is it that you are so far DOTM that you are outside of shock values?

 

[nooby_mcnoob]

@Rick Langer , thanks for explaining and offering to answer questions. So is above statement correct? If so, is it that you are so far DOTM that you are outside of shock values?

I think it's the combination DOTM and DTE close to 0 that he is aiming for.

Gentleman,, the missing piece of your puzzle is PORTFOLIO MARGIN,
i do not have standard reg t , if you do not know about pm,, heres a link for some explanation, https://en.wikipedia.org/wiki/Portfolio_margin ,, , further more, my 25 years at this game has led me to my approach which is specific, very far away strikes with very short DTE, i bascially provide a service to everyone who does credit spreads, i furnish good prices on the outer legs,, i started in 1994 with 38k doin OEX spreads ,,then it got real serious in 98 as a SOES bandit to 2002 and in 2006 the gates of heaven opened up, i got portfolio margin, GAME CHANGER.. in addition to my approach came weeklys around 2010,, i have taken 4 major hits since 1994 -- 1998,2010-2015 and 2018 18-30% of my portfolio , it just takes a few months to make it back and i still managed to Beat the S&P since 1998,,, as for the non option position of TVIX ,, since that COntango stock floated in 2009 i have shorted 100- 3000 shares a day every, it a depreciating asset just look at the 10 yr chart, it just keeps reverse splitting, again, major mkt drops this can get a lil hairy,, we keep at it,, look im not selling any thing, im not pitching anything,, and NO I did NOT LOSE MY MIND, and im NOT a ticking time bomb , im focused , i have refined my approach to fit my stocks and my comfort level, and that took time ,many years ,,im always learning like everyone else here , the differences with IB and TD is concentration risk,, yes 10 contracts may be less margin at IB,,but when you start to do size 1000 contracts TD risk profile are more favorable , the FUND im referring to is called FOSTER GLENWOOD and we have 3 accounts that make up the account , TD ,IB and ICBC,,,, we know what positions works best at each firm,,,you have to have a strong work ethic, and a really positive attitude and the smarts to be creative to find all the hidden high probability . positions, also,, working for a small firm margin .risk and trade desk, along with helping people im blessed to get to see thousands of clients accounts and how they make or lose money,, the ones who make money only trade 1 to 5 names, the rest who trade many names ,mostly lose money,, as for the and i dont think i ever ask for vaseline , im just addressing all the unknown chatter here,, when asked i DO explain in detail of any position i have, ,,i DONT bull shit, i dont play games I DONT advise ,,i TRADE and i help others ,if you wish to know more feel free to ask, i can be found on the options traders forum on Facebook,

Thanks for the response. I would like to hear about how you compare yourself to optionsellers.com

 

[Overnight]

@BlueWaterSailor Help!

How much money does it take, in your account, to be +$900K in profit? WTF!