Friday, July 9, 2010

Re: [TheOptionClub.com] New insane margins

 

May I please ask...is this new margin requirement industry wide or just from TOS?  I use Interactive Brokers and don't recall getting any notification of margin changes and as of my just checking their website regarding margin I don't see anything related to this either.  Thank you.

From: Labib Imtanes <ldvn@pacbell.net>
To: OptionClub@yahoogroups.com
Sent: Thu, July 8, 2010 11:04:07 PM
Subject: [TheOptionClub.com] New insane margins

 

 

Before you do any adjustment to your position, you better watch the new insane margin requirement. It could change dramatically: Here is an example taken from TOS as of close of today 7/8/210 if I buy 10 contract of the August put condor 107 102 95 90 my cost will be $840 which is my margin requirement and also my maximum loss to the down side or the upside because the legs are equidistant 5 points.

            Assuming in future date before expiration I see that the SPY is going down and getting close let's say to 94 or 93. To protect the down side I go ahead and buy 10 contract 91-90 vertical put spread for $350.  By doing that I reduced my maximum risk to the downside to $190 only but I increased my maximum risk to $1190 to the upside. So in the worst case scenario I lose $1190.  By doing this ( buying the vertical spread) I created a non equidistant condor therefore my margin will increase to $5190. It used to be your margin =  your maximum risk. Now your margin requirement could exceed 4 times your maximum risk. So if you trade condors, iron condors, butterflies, check the effect on your margin requirement before you do any adjustment.

 

Labib Imtanes

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