If I sell a naked put on SPY 200, the margin requirement is about 10% or $2000. But if I sell a bull put spread on SPY 200/150, the margin requirement is roughly the difference between the 2 strike prices or close to $5000. It makes no sense that the put spread has a much higher margin requirement than that of the naked put, because it poses much less risk to the brokerage firm. Logically the margin requirement on the spread should be no greater than that of the naked put. Is there any workaround?
Put spread margin requirement is greater than that of naked put
- Thread starter vandelay
- Start date
Short put margin is based on how far OTM it is. Margin will increase quickly if SPY drops a lot. You are risking $5,000 to make $10 on the spread. IB wants to make sure you don't try selling a 100 of those, even if it is far OTM. Things happen...
A 500:1 risk v reward ratio? Isn't that kinda' bad? I thought option spreads existed so you don't have to face that scenario.
200X150 spread is about 40% OTM. So selling NOV 200X150 BPS nets about 0.10 credit. Can/will SPY drop 40% or greater in a month? Probably not, but who knows? The idea isn't bad, if using OPM and you already have a fake passport to a non-extradition country.
Hell, it almost happened in Feb/March!
Based on today's ETH NQ action, that thing can now drop to 3000. So Sp down to 1000 is not impossible.
Just checked myself. SP will drop to 900. (Forgot to carry the 2.)
I believe the larger margin is due to the difficulty of getting out of spreads when they go against you.
I personally have never had the problem (I leg into entries and exits), but some have. Also might be different if you have portfolio margin.
I personally have never had the problem (I leg into entries and exits), but some have. Also might be different if you have portfolio margin.
Close! Data I have on 3rd Fri to 3rd Fri Closes for SP500, back to 1962, shows -25% for Oct 2008 and -31% for Mar 2020. No other close ones. But it could have dropped farther intra-month. Didn't look at that. Anyway, even a "safe" payday is probably not a good idea when 500/1 Risk/Reward is involved.