margin question

iceman1 · Nov 16, 2011

thanks for any input as to whether I am missing something in the following scenario.

Front month options

+8750c
-80c
+7750c

+shares of underlying equal to number of short 80c

when I go to lift (sell) long 7750c broker's system says margin increases by $750, per contract; when I go to sell more front month 80c, same system has an equally exorbitant $ amount of increased margin per contract - - - whereas in my view selling of calls will be covered by stock:

1. anyone encounter these (mis-) margining issues;

and

2. am I correct that selling more 80c as being covered so long as same # as shares --- IF the above position is being treated as a fly?

Thanks a lot

iceman1 · Nov 16, 2011

when I check margin to close -80c the system says no $margin change occurs - -- which led me to believe system was treating it as covered and not paired with 8750 or 7750 or part of a Fly

newwurldmn · Nov 16, 2011

Quote from iceman1:

when I check margin to close -80c the system says no $margin change occurs - -- which led me to believe system was treating it as covered and not paired with 8750 or 7750 or part of a Fly

I think most systems will try to pair off your short options to reduce your margin requirement. Sometimes they make a mistake.

jef · Nov 16, 2011

Hi iceman1,

The margin is not the risk of your portfolio.
Margin is : what will cost to close all you position tomorrow
Of course more you sell option more the cost is higher because
it means buy more and more option to close it.

iceman1 · Nov 16, 2011

thanks

Are you with IB?

Not happy about these continued margin issues; clearly margin is not correct. I see this repeatedly. Then, you call them and they say "tough luck!"

In that scenario if I sell the 7750c then the -80c would be on the stock. If I sell more 80c then the ones opened earlier are paired already against 7750c. This cost me today because I hesitated to close the 7750c, and, sell more 80c... sure enough, as I expected, stock sold off. Do all option brokers have these margin issues

iceman1 · Nov 16, 2011

Quote from jef:

Hi iceman1,

The margin is not the risk of your portfolio.
Margin is : what will cost to close all you position tomorrow
Of course more you sell option more the cost is higher because
it means buy more and more option to close it.

thank you... i recall that on Series 7 test, that I got an 89 on! I have also traded span/portfolio margin

that wasn't my Q though; why when I tried to sell more 80c did the IB computer say that there was margin increase when the above-mentioned positions were part of a fly with new calls being paired against the underlying shares of stock. When I checked their margin to lift the long side (77.50c) it said that increased margin whereas the short calls (80c) would then be covered call on the stock, ergo, no increased margin.

comintel · Nov 16, 2011

I have found that in some cases the IB preview feature states margin incorrectly, but after you actually execute, it gets it right.

For me, this occurs especially when you have pending limit orders. It seems to sometimes take these into account which gives strange results.

A lot of other platforms are even worse than IB though in terms of dynamic margin calculations.

iceman1 · Nov 16, 2011

Quote from comintel:

I have found that in some cases the IB preview feature states margin incorrectly, but after you actually execute, it gets it right.

For me, this occurs especially when you have pending limit orders. It seems to sometimes take these into account which gives strange results.

A lot of other platforms are even worse than IB though in terms of dynamic margin calculations.

Appreciate the feedback. But what if it "rejects' the order due to mistake; no remedy for that. Asked IB rep and he no answer, other than that's just the way it is.

comintel · Nov 16, 2011

Quote from iceman1:

Appreciate the feedback. But what if it "rejects' the order due to mistake; no remedy for that. Asked IB rep and he no answer, other than that's just the way it is.

I am sure that they must still be working on it because it clearly does get confused at times.

One good thing about IB is that they seem to allow you to have multiple limit open orders pending even if cumulatively they would cause you to be under-margined if all filled, so long as they are some way away from the market. They do not count pending orders against your margin right away. Eventually it will cancel them if need be, though.

Another broker's platform I use counts pending orders against margin right away.