Option margin - help!!!

[jvalue]

For the life of me I cannot figure Interactive Brokers margin structure.

- I am beginning to write naked strangles about 90 days out
- The initial margin required is $8,500 on the strangle
- IB's margin rate for this amount is 2.41% or $207.26

Does this mean I am paying $207.26 every time I do this trade or is that annualized? Is there even a margin rate on initial margin because it's not like stocks where I'm actually using the margin to go long/short?

 

[stevegee58]

For the life of me I cannot figure Interactive Brokers margin structure.

- I am beginning to write naked strangles about 90 days out
- The initial margin required is $8,500 on the strangle
- IB's margin rate for this amount is 2.41% or $207.26

Does this mean I am paying $207.26 every time I do this trade or is that annualized? Is there even a margin rate on initial margin because it's not like stocks where I'm actually using the margin to go long/short?

You're wrong, you are actually using margin when you're shorting options. BTW naked strangles are insane.

 

[Robert Morse]

For the life of me I cannot figure Interactive Brokers margin structure.

- I am beginning to write naked strangles about 90 days out
- The initial margin required is $8,500 on the strangle
- IB's margin rate for this amount is 2.41% or $207.26

Does this mean I am paying $207.26 every time I do this trade or is that annualized? Is there even a margin rate on initial margin because it's not like stocks where I'm actually using the margin to go long/short?

A margin requirement is not a borrowing rate. You borrow money with debit balances that exceed your account equity. A margin requirement is what you need in your account to cover that position. I suggest you learn this and more B4 you make these trades, not after.

 

[mushinseeker]

listen to stevegee... naked strangles on low iv w/ ships in the koreas is insane.

 

[ironchef]

For the life of me I cannot figure Interactive Brokers margin structure.

- I am beginning to write naked strangles about 90 days out
- The initial margin required is $8,500 on the strangle
- IB's margin rate for this amount is 2.41% or $207.26

Does this mean I am paying $207.26 every time I do this trade or is that annualized? Is there even a margin rate on initial margin because it's not like stocks where I'm actually using the margin to go long/short?

If you are new to options, don't go naked, especially on margins. Delta, Gamma and Volatility all work against your trade: When things go against you the bad things that are against you are nonlinear and can explode quickly.

You should read what happened to Karen the Supertrader, she wrote deep OTM strangles on margins.

 

[ironchef]

- I am beginning to write naked strangles about 90 days out
- The initial margin required is $8,500 on the strangle

It said you needed to have $8,500 cash in your account for this naked trade. The amount changes depending on the changes in the price of the strangle. It can go up dramatically if the price of the underlying goes dramatically up or down, or if volatility suddenly goes up a lot so it is a high risk trade unless you have a lot of free cash available just in case.

Mr. Morse, correct me if I am wrong. Thanks.

 

[Robert Morse]

It said you needed to have $8,500 cash in your account for this naked trade. The amount changes depending on the changes in the price of the strangle. It can go up dramatically if the price of the underlying goes dramatically up or down, or if volatility suddenly goes up a lot so it is a high risk trade unless you have a lot of free cash available just in case.

Mr. Morse, correct me if I am wrong. Thanks.

I'm less familiar with Reg-T Margin than PM. With either margining, volatility does not play a role in margin directly unless the higher vol hits some risk metric. For Reg-T, the believe strike price and the stock price is where the calculation come from. With PM, you would shock the portfolio by 15% and that loss with this strategy would be a good estimate of margin from the OCC. House margin can be anything the clearing firm/broker determines.

With regard this strategy being a very bad idea, I'm not going to say that. If you are new to option selling and they are still allowing you to sell options, Level 4, I'd say do what you think is best. Just play smaller with naked options until you have more experience with them. Have an exit plan for when they work and when they don't.

Bob