Margin on option stratgies, help !!

[Robert Morse]

Also, if this is a PMA, your BP is based on 6.67X. Your BP should be reduced by 6.67X the net value of the spread. For us, on LST, this is done as 4X on my demo. 97,200/4 = $24,300 or close to the value of the spread (We use 3.975X for REg-T accounts)

 

[LondonPorpoise]

Thanks Robert, I get what you are saying about ETNs (though I'm not sure I agree with the process).

I put on a bull call spread on a volatile stock and also get a funny result. Max loss $3.6k total margin $20k +

 

[Robert Morse]

Thanks Robert, I get what you are saying about ETNs (though I'm not sure I agree with the process).

I put on a bull call spread on a volatile stock and also get a funny result. Max loss $3.6k total margin $20k +

If your account has $500,000. And you start the day with no positions, you Day Trading BP is about $3,335,000. If you buy a spread, which is not marginal worth $3600, it will not take $3600 out of the leverage value. It will take out 6.67X that in general or about $24,012. I'm guessing this is what you are seeing. You will have to call IB for a better explanation in case I'm off. I'm not familiar with their risk/margin system, but very familiar with PMAs.

 

[ffs1001]

@LondonPorpoise , in your original VXX screenshot, you realise you are buying 100 lots?

When I enter the same trade with 1 lot, I get margin of £2,039 (yes, I am also London based).

(Also, for security, it's good to NOT show your account ID on any screenshot you post.)

Edit: another thought - do you already have existing positions in either VXX or SHOP in this account? If so, then try it with another stock that you do not currently trade in and see if the margin is more reasonable.

 

[Sig]

This helps. ETNs like VXX are not PM eligible. I expect if you buy a call and put the requirement should be 100% of that value.

Well there's something I didn't know before today, thanks! Any idea why not, is it because of the exposure to the credit risk of the issuer?

 

[Robert Morse]

PM was never meant to include fixed income. ETNs are backed by debt. The OCC grandfathered in many ETNs until this year.
https://www.finra.org/rules-guidance/notices/19-21

See attached. The new VXX that replaced the old one early this year was not PM eligible.

 

[Sig]

PM was never meant to include fixed income. ETNs are backed by debt. The OCC grandfathered in many ETNs until this year.
https://www.finra.org/rules-guidance/notices/19-21

See attached. The new VXX that replaced the old one early this year was not PM eligible.

Thanks, makes sense!

 

[Robert Morse]

I think ETNs are very dangerous but I see no reason why they can be included.

 

[Sig]

I think ETNs are very dangerous but I see no reason why they can be included.

I always wondered why they don't trade at a discount to the ETFs of the same index to reflect the debt that they are. The discount should be greater than the issuer's bond interest rates given they're effectively unsecured debt.