Options Margin Question

S

syd697

Please help try to clarify my question while I talk with my broker at the same time. It is concerning margin requirements for an options spread. If I sell a hypothetical 5 point wide option spread for 1 point, and the points are $100, should I be charged $500 collateral to hold the spread or $400? I believe it should be $400, since I'm taking in $100, and my max risk in the trade is only $400. Thoughts? Thanks.
 
That's a great snapshot. Thank you. So it looks like the margin for that GOOG trade would be $885 at Optionsxpress. That's how I would calculate it. Seems like some brokers want to charge the whole $1000 as margin. Much appreciated.
 
the $885 is the requirement for the 10 pt spread. ($1000)
Minus the "Credit" from the sell ($160).
then the commission deducted from the Credit.
That leaves you with the $885 total required.
But...
I always use the amount required for the 10 pt spread as my guide for the trade. I just traded this today. Did 10 contracts, so I set up my budget for the trade for $10,000 required. I could have squeezed in one more contract with the Credit I received, but I don't.
 
Still don't understand your numbers....but I get the gist. As long as I know that some brokers aren't asking for the whole spread as margin, then I'm good. Thanks.
 
Quote from syd697:

Please help try to clarify my question while I talk with my broker at the same time. It is concerning margin requirements for an options spread. If I sell a hypothetical 5 point wide option spread for 1 point, and the points are $100, should I be charged $500 collateral to hold the spread or $400? I believe it should be $400, since I'm taking in $100, and my max risk in the trade is only $400. Thoughts? Thanks.
More...

basically, 500 will be set aside, but since you take in 100 the net effect on buying power will be 400.
 
The real reason I want to know is for calculating returns for the trade.

If my hypothetical trade expires worthless, and I get to keep the whole $100, would my return be 25% ($100/$400) or would it be 20% ($100/$500)? It all depends on how much the broker asks for margin.
 
Quote from syd697:

The real reason I want to know is for calculating returns for the trade.

If my hypothetical trade expires worthless, and I get to keep the whole $100, would my return be 25% ($100/$400) or would it be 20% ($100/$500)? It all depends on how much the broker asks for margin.
More...

Your buying power is reduced by 400 so it's 25%.
 
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