What moves my account after selling options?

[IndyJonerJr]

hi guys.

Had a question as I like to take my account to "max" which then usually accounts in margin calls. I use to keep 1/16 of my money free for this fluctuation but then noticed most the time it was wasted sitting there. Or if I get margin calls the buying back is cheaper then what I bought making it still worthwhile even if I see a couple margin calls a week

I'm wondering when I sell options. What is actually making my account "balance" fluxuate? Is it the stock price itself or is it the price people are paying for contracts changes? Or is it vol. fluxuation????

I've noticed after earnings I usually "gain" more in the balance which I guess accounts for price of options usually are lower then before earnings and or vol. Crush.

Any help would be appreciated. Thanks

 

[beerntrading]

Depends on your broker and what they show for unrealized gains (I.e. Midpoint, or last..). But trading options on margin is not a sound strategy imho....You're a bad day away from owing your broker. And you're probably over extending yourself if margin comes into play on options trades.

 

[IndyJonerJr]

Thanks.

I use. Interactive brokers IB. I guess the tab I look at is under funds and says current available balance. That's what I look to see if I'm standing positive or negative at end of day..

 

[beerntrading]

Thanks.

I use. Interactive brokers IB. I guess the tab I look at is under funds and says current available balance. That's what I look to see if I'm standing positive or negative at end of day..

Yeah, you probably want to back it off a bit. The only time I play margin on options is short puts that I don't mind owning the shares as an investment position for which I know I have cash forthcoming to cover the purchase of. Margin + options is awesome until it isn't, when you pay dearly for it.

 

[cdcaveman]

Odd to hear someone talking about maxing out their margin and not knowing what causes their position to.change....are you trying to blow out?

 

[tommcginnis]

Thanks.
I use. Interactive brokers IB. I guess the tab I look at is under funds and says current available balance. That's what I look to see if I'm standing positive or negative at end of day..

In IB-land, the only thing that matters is net liq. -- ignore the myriad other titles, headings, sub-headings, etc.

If you're going to sell options, get VERY FAMILIAR with your portfolio page -- have it set to order your inventory by expiry, make sure that "Options" appears on your (portfolio page) Market Value dashboard, and on your Quote Monitor "Trader Dashboard" make sure that net liq., current initial margin, overnight available funds, and if you want, "Cushion" ARE ALWAYS SHOWING.

For myself, I seek to keep dollars@RISK (margin) ≈ 20%. If my Cushion approaches 50%, I double the watch and call General Quarters.

I have lived through Libya, China, Ukraine, FOMC/Brexit, Hillary/Trumpary -- in just the last 3-4 years? Look on a graph: in maxing margin, you are about 4 months from blowing your account.

If you are seeking to sell options, you are *accepting* risk: you are an insurance *provider* -- an Insurance Company. Behave like one.

 

[zdreg]

If you are seeking to sell options, you are *accepting* risk: you are an insurance *provider* -- an Insurance Company. Behave like one.

these people have never heard of hedging their risk. market makers do it automatically. anything else is gambling as in betting against the house.

 

[spindr0]

I'm wondering when I sell options. What is actually making my account "balance" fluxuate? Is it the stock price itself or is it the price people are paying for contracts changes? Or is it vol. fluxuation????

The exact number depends on whether your broker is using the mid point or the respective ask price (for short options). Either way, it is the increase or decrease in the value of you positions that makes your account value fluctuate. Your margin requirement is a function of the price of the underlying as well as the option premium. You might consider getting a handle on this before margining yourself close to to limit.

 

[Kim Klaiman]

hi guys.

Had a question as I like to take my account to "max" which then usually accounts in margin calls. I use to keep 1/16 of my money free for this fluctuation but then noticed most the time it was wasted sitting there. Or if I get margin calls the buying back is cheaper then what I bought making it still worthwhile even if I see a couple margin calls a week

I'm wondering when I sell options. What is actually making my account "balance" fluxuate? Is it the stock price itself or is it the price people are paying for contracts changes? Or is it vol. fluxuation????

I've noticed after earnings I usually "gain" more in the balance which I guess accounts for price of options usually are lower then before earnings and or vol. Crush.

Any help would be appreciated. Thanks

Maximizing your margin combined with holding short options through earnings is a recipe to disaster.

"after earnings I usually "gain" more in the balance"?? That would work in many cases - till you have couple of big moves like GOOG or AMZN today that blew through the implied move and any premium short position. Hope you didn't have any short premium positions in those stocks today.

When keeping money free, it is not "wasted". It's your margin of safety. Your safety net in case something goes wrong. But I guess you will learn it the hard way.

 

[TrustyJules]

[q]I'm wondering when I sell options. What is actually making my account "balance" fluxuate? Is it the stock price itself or is it the price people are paying for contracts changes? Or is it vol. fluxuation????[/q]

As posted above the exact amount depends on your broker. Here is an example based on the conditions my broker imposes. The example is a short straddle for Activision - my brokers rule for straddles are that he will take the margin requirement from either the put or the call side whichever one is highest.

Here's the position:
10/13 OS 8 CNOV17 60 @ $3.25
10/13 OS 8 PNOV17 60 @ $2.07

Net credit: $ 4,256

For both calls and puts the potential margin requirement is calculated in 3 ways and again whichever comes out highest is the one that applies. On 10/13 ATVI closed @ $61.08 and the required margin % for that stock was 10%

Call Margin calculation :
1) ask price call option+[Margin% for the underlying]x(2xask price of the underlying-strike price)xcontract size (100)
2) Ask price call option x 1.25 x 100
3) (ask price call option + $0.50) x 100

The results for each one are at closing on 10/13:

1) $ 7573
2) $ 3250
3) $ 3000

Put Margin calculation:

1) ask price put option+[Margin% for the underlying]x(2xstrikeprice -bid price of the underlying)xcontract size (100)
2) Ask price call option x 1.25 x 100
3) (ask price call option + $0.50) x 100

1) $ 6370
2) $ 2070
3) $ 2457

So on the day the trade opened the straddle margin was $7573

Now flash forward to 10/27 (i.e. last Friday) and ATVI was trading at $64.14 at the close:

Call calculations:
1) $ 9422
2) $ 4950
3) $ 4360

Put Calculations:
1) $ 5108
2) $ 800
3) $ 1040

So in the space of two weeks the margin requirement grew to $ 9422 which is $ 1849 more or 24.4% more

As it happens I am on the other side of this trade - so I am not bothered. But if you were maxed out on your margin you will readily see the problem, thousands of dollars fluctuations are possible without the underlying making moves of more than 4%. If you have several short positions you are sure to blow out your account at one time or another.