You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
options account with few restrictions..
- Thread starter GGSAE
- Start date
Quote from a529612:
How would that work out in an IRA "cash account" since the short will involve the use of margin?
You are not borrowing money when you sell an option. The margin is the amount of cash you need to have in your account to cover your max loss basically.
Here is an example taken from thinkorswim.com:
# How do I calculate the margin on a short call or short put?
The margin requirement of a short call or short put involves three calculations. The margin required is the largest value of the results of those calculations.
The calculations are:
1) 100% of the proceeds of the sale + 20% of the stock value ? the out-of-the-money value
2) 100% of the proceeds of the sale + 10% of the stock value
3) 100% of the proceeds of the sale + minimum dollar amount per option contract (currently $250)
For example, the margin required to sell 3 XYZ Apr 50 calls at $2.00, with XYZ at $49.00 is found through the formulas above.
1) $600 + $2940 - $300 = $3240
2) $600 + $1470 = $2070
3) $600 + 750 = $1350
The margin requirement is, therefore, $3240.
The same method is applied to find the margin on short puts.
Quote from MTE:
Thinkorswim is definitely the one to check out as it has no trading levels so once you're approved for options trading you can trade any strategy you want, provided you can meet the margin requirements.
Does IB have trading levels? Or is it the same as TOS, once approved any strategy is available?
The term "margin" seems to have many meanings so I'll just avoid using it for now.Quote from a529612:
How would that work out in an IRA "cash account" since the short will involve the use of margin?
For IRA accounts basically you must have enough cash to cover the risk of any spread you play. For example, to have a $5 wide credit call spread you must have $500 cash for each spread.
That is the rough idea, there are some nuances that may vary per broker. For example, some brokers may let the credit from the above spread count toward the $500.
Don
What happens in an IRA account if you are about to be assigned on a position that will result in being short stock? I'm assuming the broker will automatically close out the spread at expiration if you don't do it.
Eliot that actually happened to me earlier this year. TOS worked with me to add liquidity to the account so I could work out the situation. They were great.
I read a thread somewhere (probably here) about someone who had a short put in hist IRA. He thought it was going to expire OTM, but it was assigned anyway. Then some bad news came out over the weekend and the stock dropped. He didn't have enough other securities in his account to settle the long stock. He was in a bind because the broker wanted him to add cash but he couldn't due to IRS rules. I've probably mangled the details, but I think the gist is correct.
I was thinking about this later. Can you add more $$$ to an IRA, but without the tax writeoff?
I was thinking about this later. Can you add more $$$ to an IRA, but without the tax writeoff?