Re: [TheOptionClub.com] New insane margins

 

I believe Think or Swim was one of the last holdouts for raising their Margin requirements.  It's actually not FINRA directly, but rather Pensons (the clearing house for many options brokers) "interpretation" of the FINRA regs.

Tom Sosnoff is "fighting" it, but honestly - he's one guy who used to own an options trading company --  Google Penson -- many many others use them as their clearing firm.  Ironically, most other brokers have been using this

"High Margin" interpretation for some time now. In short - it sucks - Almost as ridiculous as no short positions in an IRA.... almost -- 

This is what I received when I inquired:

Hello Dennis,  Our clearing firm, Penson Financial Services, Inc. has notified us of changes in the way they are calculatingmargin for certain complex option spreads based on their interpretation of regulatory requirements.  As a result, on July 1, 2010 the changes outlined below will be implemented and enforced by our clearing firm, and you will see these changes in the trading application by that date. Please review the examples below. It's possible that some of your positions will have higher margin requirements beginning July 1st.  If you have questions or concerns, please email margins@thinkorswim.com for assistance.  Thank you for your attention to this matter.  The following are examples of the changes to the margin requirements being implemented by our clearing firm.   Butterfly spread positions must now have equidistant strikes intervals, have a balanced number of contracts, and the same expiration date in order to have zero margin. For example: +1 XYZ December 2010 Call 40 strike -2 XYZ December 2010 Calls 50 strike +1 XYZ December 2010 Call 60 strike  These previously allowed butterfly spread variations will not be margined as an individual three-legged spread position but will be calculated as two individual long and short vertical spreads:  For example, these strikes are not equidistant: +1 XYZ December 2010 Call 40 strike -2 XYZ December 2010 Calls 50 strike +1 XYZ December 2010 Call 65 strike and will be treated as a long +1 40/50 call vertical spread and a short -1 50/65 call vertical spread with amargin requirement of $1,500                 Or These contracts are not balanced: +2 XYZ December 2010 Calls 40 strike -3 XYZ December 2010 Calls 50 strike +1 XYZ December 2010 Call 60 strike and will be treated as long +2 40/50 call vertical spreads and short -1 50/60 call vertical spread with a marginrequirement of $1,000.  Iron Condors must have the same number of contracts, may not have overlapping strikes, and must have the same expiration date in order to have the margin based on the width of the long and short strikes of the calls or puts. For example: +1 XYZ December 2010 Call 55 strike -1 XYZ December 2010 Call 50 strike -1 XYZ December 2010 Put 25 strike +1 XYZ December 2010 Put 20 strike  The below variation will not be calculated as an individual four-legged spread position because the contracts are not the same number for the calls and puts. +1 XYZ December 2010 Call 60 strike -1 XYZ December 2010 Call 50 strike -2 XYZ December 2010 Puts 25 strike +2 XYZ December 2010 Puts 20 strike and will be treated as short -1 50/60/25/30 condor and short -1 20/25 put vertical spread with a marginrequirement of $1,500.  A Double Diagonal will no longer be calculated as an individual 4-legged spread positions, but will be calculated as two individual diagonal spread positions.  Thanks.  Margin Department 866 839 1100 x3220 773 435 3232 fax Thinkorswim by TD AMERITRADE 600 west chicago avenue,  suite #100 chicago, IL 60654-2597 Options trading is subject to risks and is not suitable for all investors. Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request.thinkorswim, Division of TD AMERITRADE, Inc. Member FINRA | SIPC |  NFA Copyright 2010, TD AMERITRADE IP Company, Inc.  All rights reserved. Used with Permission

On Fri, Jul 9, 2010 at 12:23 PM, Mohamed Irshadullah <mirshadu@yahoo.com> wrote:

 

This is ridiculous. Perhaps, This clearly seems to be a move by FINRA to limit the private option traders. I don't know if the ulterior motive of FINRA is to contain the market volatility by enforcing this?  Talking to one of the Trade King broker, i came to know that brokers are too scared to say anything to FINRA, he however suggested that as private investors, we can definitely write to FINRA to make them see if there is any sense in what they are doing. --- On Fri, 7/9/10, Labib Imtanes <ldvn@pacbell.net> wrote: From: Labib Imtanes <ldvn@pacbell.net> Subject: [TheOptionClub.com] New insane margins To: OptionClub@yahoogroups.com Date: Friday, July 9, 2010, 12:04 AM     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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