Put hedging stock on margin

[bigspeculate]

If I got a long put hedging a stock bought on margin, does it have an impact on a margin call?
Say it's 2to1 margin and the stock declines 50%, will the long put prevent a margin call?

 

[Robert Morse]

No. If your mark to market equity drops below the maintenance requirement, you get a call.

 

[bigspeculate]

Thanks.
Now if I get a call, could I sell the now deep itm put? Will I only end up losing the cost of the put?

 

[Robert Morse]

Regulatory calls from trading typically have to be met with cash. You should ask your broker. If you lose money, does it matter if it from the stock or the hedge? You still need a minimum amount of capital to protect against losses from the entire position.

 

[zdreg]

Regulatory calls from trading typically have to be met with cash. You should ask your broker. If you lose money, does it matter if it from the stock or the hedge? You still need a minimum amount of capital to protect against losses from the entire position.

above does not apply to accounts with portfolio margin.

 

[Robert Morse]

above does not apply to accounts with portfolio margin.

In what way? If he losing money and his account drops below a certain level, he would get a call.

 

[zdreg]

In what way? If he losing money and his account drops below a certain level, he would get a call.

in a portfolio,margin account an option is considered to be good margin rto offset a stock position.

 

[Robert Morse]

Yes, but in his example, if the "stock declines 50%", PM only shocks +|- 15%. He might get a call.

 

[MoreLeverage]

Is it possible that putting on a risk reducing position in a PM account may have the same effect as selling some of the losing long holding? In this way, you could potentially reduce your margin call by buying puts on your long position if it resulted in reducing your margin requirements rather than increasing them.

 

[Robert Morse]

Yes and no. Yes, before you get a PM regulatory call (they are only at end of day), you can reduce risk by hedging. However, most clearing brokers require that if you get a PM call from trading, that you meet that call with cash. If you get the PM call from an adverse move in the stock, but not from risk adding trades, you can typically reduce risk to meet that PM call. It will vary from broker to broker.