selling options on IB

[atticus]

Quote from damnit:

You can only buy options on cash. Stocks and futures are bought with margin newbie.

Ex. You have 25k. Max Buy is 25k worth of options. You have risk only 25k and your broker could care less if they expire worthless.

You CAN buy options on margin.

 

[scurvy]

Quote from damnit:

Yes IB will try to close it out automatically before your account goes negative. You need to do some homework before shorting naked calls or puts because of the risk associated with this strategy.

I would suggest you be careful if you only have a few thousand to play with.

Naked puts are not any riskier than covered calls. They have the exact same profit profile (aside from lower commissions).

Also, there's nothing wrong with shorting calls if you're long an equal amount of stock (or calls at a higher strike).

It's when you're net short calls that you're exposed to potentially unlimited losses.

 

[z32000]

okay... I thought so, but I needed a confirm.

Yes I am a newbie and I appreciate the help.

So I take it....shorting call or put options are always carried out under a margin account..

and everything else is also under a margin account (futures and stock)? except for call options.

assuming I initially selected the margin account instead of cash account when originally creating my account.

 

[atticus]

Quote from z32000:

okay... I thought so, but I needed a confirm.

Yes I am a newbie and I appreciate the help.

So I take it....shorting call or put options are always carried out under a margin account..

and everything else is also under a margin account (futures and stock)? except for call options.

assuming I initially selected the margin account instead of cash account when originally creating my account.

You can confirm the status of your account by simply logging into the admin functions of IB's website. Open a new margin account at IB if you're in a cash account. Cash-transfers are instantaneous between IB accounts.

 

[z32000]

Also, there's nothing wrong with shorting calls if you're long an equal amount of stock (or calls at a higher strike).

but wouldn't this pretty much get an account to go no where?
...or actually, come to think of it... since calls can go down to 0 at the least...this would be an ideal strategy if you thought the market was heading down...

It's when you're net short calls that you're exposed to potentially unlimited losses.

can you please elaborate a bit more.

thanks
I appreciate the help

 

[atticus]

Quote from damnit:

No you cannot buy options using margin. You can buy them on a margin account though.

An example:

CME ES options. Buy deep ITM calls or puts in which the premium exceeds the overnight margin requirement on futures. CME clearing will charge the lesser of the premium or ES overnight margin.

CME Oct 1200C at 329.00 = $16,450 in premium. CME clearing charges the overnight initial margin on futures, or approximately $4,000.

 

[scurvy]

Quote from z32000:

but wouldn't this pretty much get an account to go no where?
...or actually, come to think of it... since calls can go down to 0 at the least...this would be an ideal strategy if you thought the market was heading down...



can you please elaborate a bit more.

thanks
I appreciate the help

Other people have covered this topic before in a manner better than I can. I'd suggest picking up a good options book. The Laryy McMillan ones were good when I first started. The two strategies you just inquired about are short verticals and short naked calls. He goes over both of those.

 

[Bogan7]

Quote from z32000:

I'm still new to options and would like some help. I'm using a simulation account for now.


if I short a Call option...I've read that this is a risky strategy...
If I'm not mistaken, your account can go negative...

But correct me if I'm wrong, but doesn't Interactive Brokers or other brokers usually have daily margin requirements that prevent your account from going negative by automatically closing it out?

Do you mean the trade going neg or your whole account? Please have a think before you do this style of trade you obviously have no idea about money management. At the end of the day you are responsible for your own trades. Relying on the broker to do your work when they have thousands of clients is foolish in the extreme

 

[z32000]

I'm in the learning process so I am not in the verge of throwing my money into something I have no idea of.

This is why I'm trying to clear things up. I've read many books and somettimes things can get overwhelming.

To answer your question, I am refering to the account going negative and I'm asking...wouldn't the margin call take care of liquidating your call or put options...

but it looks like a few members have answered this question...


so basically..

buying call and put options... (account can go to zero but not negative...no margin call protection)

selling call and put options... (account can go to negative but margin calls will try to prevent this from happening if I'm not mistaken.)

selling stocks (account can go to negative but margin calls will try to prevent this from happening if I'm not mistaken.)

buying stocks (account is also protected under margin calls)

buying and selling futures (account is also protected under margin calls)

buying future options (no margin calls protection?)

selling future options (margin call protection?)


if there are any mistakes, please feel free to correct them.