Portfolio Margin

[ids]

Hard to tell not looking into your portfolio. I can check if you PM me your account id.

 

[Jay_Ap]

I see a lot of comments about what Portfolio Margin was "designed for". At the end of the day, the genesis of the regulations matters much less than what Portfolio Margin can actually be used for today - and leverage, options trading, and hedging are all legitimate applications.

Using PM to leverage up a high yielding portfolio (whether it be high dividend yielding stocks & etfs, or high yield corporate bonds) is one of the best strategies for portfolio margin at the moment given how attractive dividend and corp bond yields look currently, coupled with really low margin borrowing rates.

Now, I'm not sure if individual corporate bonds are allowed to obtain PM treatment (I think - in theory at least - they are, but most brokers probably won't allow it). However, high yield ETFs sure are.

So, for example, the iShares iBoxx HY Corp Bond ETF (ticker: HYG) currently yields around 7%. You could leverage this up three times and get a gross yield of 21%, minus the IB margin cost of say 3.4% (1.7% * 2), to give you a net yield of 17.6%.

This, of course, may be a little risky as - according to my calculations - the fund's effective duration to medium term rates is around 7. This means that if the medium term gov interest rates move up around 50 bps (i.e. half a percent), the fund will go down roughly 3.5%. On your leveraged portfolio, this would be a 10.5% loss. In addition to the rate risk, you also have credit risk.

So, this strategy is only for you if you believe the Fed is committed to low rates and provided you don't expect to see any problems in credit markets.

-Jason Apolee

 

[Whistlingleaf]

20 random preferred stocks:

psa-pa
stag-pa
aiv-pz
aev
mer-pm
bac-ph
c-ps
dxb
rnr-pc
sdo-pc
aht-pa
cuz-pa
dlr-pe
kim-ph
nct-pb
ofc-pg
tco-pg
wri-pd
isg
puk-pa

 

[ids]

It is straightforward. We will charge MAX(15%, 5 STD) on these stocks. There are no risk offsets for these instruments. 5 STD is 5 standard deviations on 30 last trading days period.

 

[d08]

Quote from MoreLeverage:

6:1 sounds good, but in practice my long short stock and ETF portfolio starts hitting the IB risk limits a bit over 3:1. I wouldn't expect much more than that, and I'm usually mostly dollar/sector neutral too.

That's because you're probably using those "double" or "ultra" ETFs which actually are leveraged by themselves, so it makes perfect sense.
6:1 with equities is perfectly achievable.

 

[MoreLeverage]

Quote from d08:

That's because you're probably using those "double" or "ultra" ETFs which actually are leveraged by themselves, so it makes perfect sense.
6:1 with equities is perfectly achievable.

I don't trade those, but ever since FINRA decided to protect us from ourselves, those no longer get useful additional leverage. Guess they'd rather we trade futures?

I followed up with ids's offer and his explanation made since in my case.

 

[aaxaa]

Hi,
Can someone from Interactive Brokers advise if margin lending can be obtained for bond mutual funds like PIMCO MUTFONAX

thanks

Quote from ids:

It is straightforward. We will charge MAX(15%, 5 STD) on these stocks. There are no risk offsets for these instruments. 5 STD is 5 standard deviations on 30 last trading days period.