Margin and other great topics
- Thread starter qazmax
- Start date
The markets aren't fair.
The SEC is run by "former crooks" i.e. guys who worked for merril, goldman, lehman, and so on....so what do you expect?
Life's not fair, either.
You should read "Looking Out for Number One" by RJ Ringer. It will help explain some of the things we've been discussing here.
someone asked about options margin...... Whenever a person sells ( writes ) an option they are on margin and there are margin requirements to be met. Also long options do not count towards your buying power.
I think i finally got it.Here is a summary of what i learned.If anything is wrong,don't hesitate to correct me.
In a cash account, you have to wait three business days to use the funds from a stock sale. In a margin account, you can use the funds immediately. If a margin account has less than $25,000, you can only do 3 day trades in a 5 day period getting 2 to 1 margin. If you have over $25,000 you can do unlimited day trades getting 4 to 1 margin, but only for daytrades,while still getting 2 to 1 for overnight positions. If you have less than $25,000 in a margin account, you do not have the minimum equity to be a daytrader. So, to remain without penalties or restrictions you would only be allowed to daytrade 3 times in 5 days. The forth trade would put you into a day trading equity call, and your account would be labeled a day trading account. If you deposited monies to this account to bring you to the 25k mark you would then get 4 to 1 margin. If you do not meet the call, your account will become restricted,meaning cash only for 90 days.
In a cash account, you have to wait three business days to use the funds from a stock sale. In a margin account, you can use the funds immediately. If a margin account has less than $25,000, you can only do 3 day trades in a 5 day period getting 2 to 1 margin. If you have over $25,000 you can do unlimited day trades getting 4 to 1 margin, but only for daytrades,while still getting 2 to 1 for overnight positions. If you have less than $25,000 in a margin account, you do not have the minimum equity to be a daytrader. So, to remain without penalties or restrictions you would only be allowed to daytrade 3 times in 5 days. The forth trade would put you into a day trading equity call, and your account would be labeled a day trading account. If you deposited monies to this account to bring you to the 25k mark you would then get 4 to 1 margin. If you do not meet the call, your account will become restricted,meaning cash only for 90 days.
True for the most part...
Leaps have been approved for margin by the reglators. 75% paid for. 25% marginged. But I do not know of any brokers using this yet?
There are many interesting option margin calculations for complex options. Many systems are plagued with errors.
E.g.
+ 50 call
+50 put
- 45 put
Should be all paid for debit margin.
Long calll and long put spread...
But many firms calculate this as long straddle and a naked put. Naked option margin is the most expensive. These means that pairing complex optionaccounts can be tricky.
But there is margin for butterflys, reversal/conversions, etc...
Leaps have been approved for margin by the reglators. 75% paid for. 25% marginged. But I do not know of any brokers using this yet?
There are many interesting option margin calculations for complex options. Many systems are plagued with errors.
E.g.
+ 50 call
+50 put
- 45 put
Should be all paid for debit margin.
Long calll and long put spread...
But many firms calculate this as long straddle and a naked put. Naked option margin is the most expensive. These means that pairing complex optionaccounts can be tricky.
But there is margin for butterflys, reversal/conversions, etc...
My broker mentioned that i could write options in a cash account,but for call writing you need to be long the stock and for put writing you need to have cash in the account equal to the amount you would have to pay to buy the stock if you were assigned an exercise.Is this correct in that i can write options in a cash account,and not a margin account?
That is correct...
Covered calls... (meaning underlying exactly matches the deliverable on the option), can be done in a cash account.
The monies paid for the stock cover the position. The max loss is covered becasue the stock can only go to zero (and it was paid for in $$). The call covers the upside only. So there is no additional risk associated with the margin of this position.
Cash covered put... means there is actual cash in the account that covers the the strike value of the option. Meaning if you have a short 35 put... you have $3500 in your account and held aside for that position (you do receive a credit for selling the put which is applied to the account.)
If the stock goes to zero.... you have to sell the stock at 35 and yu loose all your money covering this position. If the stock goes to 100 you keep the premium received.
not every broker allows for cash covered puts. Mainly because it requires more programming, and programmers are expensive.
Covered calls... (meaning underlying exactly matches the deliverable on the option), can be done in a cash account.
The monies paid for the stock cover the position. The max loss is covered becasue the stock can only go to zero (and it was paid for in $$). The call covers the upside only. So there is no additional risk associated with the margin of this position.
Cash covered put... means there is actual cash in the account that covers the the strike value of the option. Meaning if you have a short 35 put... you have $3500 in your account and held aside for that position (you do receive a credit for selling the put which is applied to the account.)
If the stock goes to zero.... you have to sell the stock at 35 and yu loose all your money covering this position. If the stock goes to 100 you keep the premium received.
not every broker allows for cash covered puts. Mainly because it requires more programming, and programmers are expensive.