Proprietary Margin Requirements for Spreads

[optionsplayer]

I realize that intraday equity buying power in some houses can go as high as 10-1. My inquiry is concerning deep out of the money put or call spreads, say a week out from an expiration on a proprietary platform.

If you are licensed and a legit prop trader, do you guys get any "extra" juice with respect to this kind of strategy? In other words, what kind of leverage does the prop platform offer with respect to writing covered option spreads. I realize some houses discourage and instill a flat policy by close but any amplification on the leverage and margin requirement in this area would be appreciated.

For instance, in retail brokerage, if you write say a put spread, and the difference is 10 points between the two strikes, you would have to essentially cover all of what is in between, the 10 points times # of shares/contracts. Often you will even be required to have additional minimum equity for other non-relative reasons. It can be kind of frustrating especially in traditional brokerages like Morgan Stanley.

Thanks in advance

 

[Gene Weissman]

If you trade at a pro firm that allows you to trade options, most will give you Broker/Dealer margin on spreads, Conversions, Syntheic Puts, Syntheic Calls etc. Since the 1987 crash, no clearing firm will let traders sell naked options in size(especially puts) since the volatility risk can be enormous. I have included our
risk parameters for our LLC members. We are not an option trading firm, but we allow stock traders to do option strategies as
part of their trading . See www.stocktrade.net/services/portf_hedging/hedg_exmpl.htm
and www.stocktrade.net/services/portf_hedging/hedg_requir.htm for
margin examples and requirements. These examples are for comparison purposes only and are guidelines for licensed professional traders.



Gene Weissman
Lieber & Weissman Sec., L.L.C.
gweissman@stocktrade.net


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