RegT or Portfolio margin.Question.

[raf_bcn]

Hi

I am a newbie retail trader with a margin RegT account.
Sometimes my short positions are early assigned and my account automatically has a margin violation because I have to buy a lot of shares.
When that occurs my broker, Interactive Brokers, gives me 10 minutes at the begining of the trading day to solve the margin violation. I have noticed it is not possible to restore my position in 10 minutes because it IS NOT possible to buy or sell an option with a Fair price in the first minutes.

Want to notice that when I am assigned my position has no aditional risk, the margin violation it IS NOT due to a market movement but only due to the early assignment.
I have explain to IB that situation but they don't want to know.

I think one solution could be a Portfolio margin account because I think this issue would be solved. But I am not completely sure. I want to ask the traders who have Porfolio accounts a couple of questions that I don't understand.

1_ Is a Portfolio account like an unlimited margin credit ?
E.g.
it is possible to sell strangles very OTM without the necessity of buying long options to reduce the margin requirement?
If I am assigned and I have to buy a large number of shares but if the risk doesn't increase, I will be able to have those shares in my account during days? I supose paying an interest for the money , but without margin calls.



2_I have read it could be very risky to have a Portfolio Margin account, mainly for complex options strategies.
www.gammaoptimizer.com/articles/Margin-and-Complex-Options-2017094419158.html
But since I take risk very seriously I only see advantages.
Please I would like to know some opinions or experiences about that.


Thank you.

 

[Sig]

Hi

I am a newbie retail trader with a margin RegT account.
Sometimes my short positions are early assigned and my account automatically has a margin violation because I have to buy a lot of shares.
When that occurs my broker, Interactive Brokers, gives me 10 minutes at the begining of the trading day to solve the margin violation. I have noticed it is not possible to restore my position in 10 minutes because it IS NOT possible to buy or sell an option with a Fair price in the first minutes.

Want to notice that when I am assigned my position has no aditional risk, the margin violation it IS NOT due to a market movement but only due to the early assignment.
I have explain to IB that situation but they don't want to know.

I think one solution could be a Portfolio margin account because I think this issue would be solved. But I am not completely sure. I want to ask the traders who have Porfolio accounts a couple of questions that I don't understand.

1_ Is a Portfolio account like an unlimited margin credit ?
E.g.
it is possible to sell strangles very OTM without the necessity of buying long options to reduce the margin requirement?
If I am assigned and I have to buy a large number of shares but if the risk doesn't increase, I will be able to have those shares in my account during days? I supose paying an interest for the money , but without margin calls.



2_I have read it could be very risky to have a Portfolio Margin account, mainly for complex options strategies.
www.gammaoptimizer.com/articles/Margin-and-Complex-Options-2017094419158.html
But since I take risk very seriously I only see advantages.
Please I would like to know some opinions or experiences about that.


Thank you.

The short answer to your question is no, PM is not the holy grail you seek.
Long answer is IB will arbitrarily jack your required margin around far more and far more unpredictably and irrationally with PM than Reg-T.

 

[MoreLeverage]

I don't have as much experience with options, but for equities a PM account is generally better. However, it's also a lot harder to figure out what happened or why when something changes with your available margin.

 

[TrustyJules]

"Sometimes my short positions are early assigned and my account automatically has a margin violation because I have to buy a lot of shares."

What do you trade in that that happens? Early assignment is rare except around dividend payments. It occasionally happens around expiration if there are price distortions in the option market whereby someone ITM cant get a fair price. However both these situations are very avoidable.

"I have noticed it is not possible to restore my position in 10 minutes because it IS NOT possible to buy or sell an option with a Fair price in the first minutes."

Well again trade more liquid options though I also do not understand why you simply dont sell the shares/buy your short shares back. Whilst options trade resumes slowly particularly if you are looking OTM - the stock market tends to be quite liquid. If you are trading shares that are so illiquid as to not quote in 10 mn you should reconsider your strategy. Liquidity is the life blood of options strategies.

 

[raf_bcn]

Hi

Thank you for your opinions @Sig @MoreLeverage

You two coincide in saying portfolio margins could be less predictable. That could be a problem. In low volatility markets the margin requirements would be very low so you could get a lot of leverage. But when the vol rises the margin requirements might change a lot and makes you close positions.

But at the end the margin is not going to be more than the maximum posible loss of the positions.


_brokers are required to compute portfolio margin according to a methodology called TIMS (Theoretical Intermarket Margining System).TIMS is both a risk and rules based methodology.
While several brokers have been granted permission to augment TIMS with their own in-house customizations, TIMS still provides the baseline used by all brokers.

So there could be differences between brokers. I suspect IB could be more strict than others in the requirements.

 

[raf_bcn]

Hi

thank you for your response @TrustyJules

Early assignment is rare except around dividend payments.

I have to say that I thought the same as you, all the options literature says this, but the reality is different. Puts itm are early assigned very often, and calls only the day before ex-dividend.

Well again trade more liquid options though I also do not understand why you simply dont sell the shares/buy your short shares back.

I only trade very liquid options Spy, Spx. That is not the problem.
I don't close my strategy before the expiration day. If I am early assigned, yes I sell the shares that have been assigned and I have to restore my postion by selling more puts. Then is when I have 10 minutes to do that and I am not able to sell puts with a fair price, at least with my broker.
After 20 minutes the prices are normal again and I could restore my position with a fair price. Here is where I think with a Portfolio margin account I won't have the obligation to
restablish the margin violation in 10 minutes because there won't be a margin violation since my position has no risk.

I will put an example of what happens , with images, in the next post.

 

[raf_bcn]

What I would like to know is your opinion about one particular scenario. I have tried to ask it to the broker but no conclusive answer.

I am posting a profile risk of the three situations to easily see what I am saying

E.g.

1_ Spy at 250 , open a Bear put , + 10 put 246 - 10 put 245
Maximum profit 830
maximum loss 170

2_Spy goes to 241, so the short put is now itm.

3_My short puts are early assigned and I have to purchase 1000 Spy.

Look at the Risk profile of the new position. Has no risk. But with a Regt I will have a margin call because I don't have the cash to purchase 1000 spy.
But there is no risk , so the margin required in a Portfolio margin account would be none.
Then, no margin call I assume. Is that right?

thank you

 

[MoreLeverage]

Hi
You two coincide in saying portfolio margins could be less predictable.

That wasn't exactly what I was saying. I was saying it's harder to understand changes, not that PM requirements are more subject to change than Reg T requirememts.

In low volatility markets the margin requirements would be very low so you could get a lot of leverage. But when the vol rises the margin requirements might change a lot and makes you close positions.

That can happen in any type of margin account - if volatility is rising, your broker may decide to increase the margin requirements on all VIX products to 100%. When GBP volatility was expected to be high around the Brexit vote, those FX requirements were increased a lot. Things like this definitely happen, and they can effect both kinds of margin accounts. A PM account might be effected more, but that's probably just because it was more lenient beforehand. If Reg T gives you 50% and PM gives you 20% requirements, your requirements could go up 2x with a worst case Reg. T situation and 5x for a PM if you see what I mean. If you weren't using the max leverage, it could be the same.

But at the end the margin is not going to be more than the maximum posible loss of the positions.

I'm not quite sure exactly what you mean by this. For any sort of short position, there will be a margin requirement despite there not necessarily being a maximum loss, ie short a stock or short a call.

_brokers are required to compute portfolio margin according to a methodology called TIMS (Theoretical Intermarket Margining System).TIMS is both a risk and rules based methodology.
While several brokers have been granted permission to augment TIMS with their own in-house customizations, TIMS still provides the baseline used by all brokers.

So there could be differences between brokers. I suspect IB could be more strict than others in the requirements.

In my experience with stocks, IB's PM requirements are less often strict than other brokers. It's hard to generalize and varies for each stock/ETF, but IB is definitely more generous with PM margin on average.

 

[robert111]

Easy problem to fix, simply trade spx options. No chance of early assignment.

 

[truetype]

I think one solution could be a Portfolio margin account

Another solution would be adequate capital. "Trade with your head, not over it."