spreads, still can't find two answers on these questions..

I

IndyJonerJr

hi guys,

asked some questions about spreads a couple weeks ago, got some information, then searched around and couldn't find anyone talking specifically about what I wanted to know..

#1. margin is suppose to be width of spread minus credit.. is margin locked in then no matter what? say vol. was 10 then spikes to 70, would the margin still be capped then? the other reason I can't see this being true is margin requirements can change per broker, so is that another reason margin could actually change also, correct? all I've ever heard is you know max margin when entering a trade but these two things on my mind tell me that is not correct?


#2. talking of credit spreads.. you always have a positive credit.. but looking at it on a sheet doesn't show you options strategies, it shows an option bought or sold for a debt or credit.. looking at a credit spread, you have the side you paid for is what I want to talk about. say you take it to expiration, expires worthless and technically you lost all that money in the trade, right.. doesn't that then count as a wash sale adjusting cost basis next purchase of the the option?? Am I looking at this the wrong way?

thanks guys
 
IndyJonerJr said:
hi guys,

asked some questions about spreads a couple weeks ago, got some information, then searched around and couldn't find anyone talking specifically about what I wanted to know..

#1. margin is suppose to be width of spread minus credit.. is margin locked in then no matter what? say vol. was 10 then spikes to 70, would the margin still be capped then? the other reason I can't see this being true is margin requirements can change per broker, so is that another reason margin could actually change also, correct? all I've ever heard is you know max margin when entering a trade but these two things on my mind tell me that is not correct?


#2. talking of credit spreads.. you always have a positive credit.. but looking at it on a sheet doesn't show you options strategies, it shows an option bought or sold for a debt or credit.. looking at a credit spread, you have the side you paid for is what I want to talk about. say you take it to expiration, expires worthless and technically you lost all that money in the trade, right.. doesn't that then count as a wash sale adjusting cost basis next purchase of the the option?? Am I looking at this the wrong way?

thanks guys
More...
#2. After you trade the spread, you have independent positions that are being shown in your position file. For margin purposes and Risk there is an offset but you do not have to unwind them together.
 
"Width-of-the-Spread, minus Credit-received" is a great starting point, and for most accounts will work fine with the SEC [Securities].

However, portfolio margining will look to tie things together in ways that "make sense" for your holdings, and may *free* or may *impinge* your margin capital. If you trade [Commodities'] futures or FOPS, you key up the CFTC, and their Minion From Hell, "SPAN"....
http://www.cmegroup.com/clearing/risk-management/span-overview.html

If volatility explodes, you can expect margin requirements to expand to fill the original
"Width-of-the-Spread, minus Credit-received" recipe with which you started.

Lastly, an option is a specific contract, and the $300 TSLA call expiring on Friday carries no legal tie to the $300 TSLA call that expired today, nor the $300 TSLA put that expires on Friday, nor the $300 (or $295) TSLA call that expires next Monday. Different beasts.

How's that?
 
Last edited:
tommcginnis said:
.......

If volatility explodes, you can expect margin requirements to expand to fill the original
"Width-of-the-Spread, minus Credit-received" recipe with which you started.

.........
More...



If volatility explodes there will be zero impact on margin requirements. Margin requirements will not expand.
 
OptionsOptionsOptions said:
If volatility explodes there will be zero impact on margin requirements. Margin requirements will not expand.
More...

That's what you would think, sell a 5 vertical in the SPX and you would think the margin would not be more than 5. But with IB that is not the case. When vol goes way up and there are wide markets, they increase the margin at times to more then 5. Numerous threads on this subject. It is suggested in those threads that traders need to put an offer in to trick IB's systems into keeping the margin down.
 
IndyJonerJr said:
hi guys,

asked some questions about spreads a couple weeks ago, got some information, then searched around and couldn't find anyone talking specifically about what I wanted to know..

#1. margin is suppose to be width of spread minus credit.. is margin locked in then no matter what? say vol. was 10 then spikes to 70, would the margin still be capped then? the other reason I can't see this being true is margin requirements can change per broker, so is that another reason margin could actually change also, correct? all I've ever heard is you know max margin when entering a trade but these two things on my mind tell me that is not correct?


#2. talking of credit spreads.. you always have a positive credit.. but looking at it on a sheet doesn't show you options strategies, it shows an option bought or sold for a debt or credit.. looking at a credit spread, you have the side you paid for is what I want to talk about. say you take it to expiration, expires worthless and technically you lost all that money in the trade, right.. doesn't that then count as a wash sale adjusting cost basis next purchase of the the option?? Am I looking at this the wrong way?

thanks guys
More...

1) Margin changes according to the riskiness of the security. The bigger the price swing, the higher the margin required.

2) The credit spread. The credit spread itself is an option strategy. The buy is a wash sale towards the current sale, not the next one. If you ever get assigned on the sale of the option, you have the option that you bought to hedge against it. The next spread is going to be a completely separate pair.
 
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