Credit spreads with Commsec

jackson8 · 13 April 2009

there are probably a few basic principles involved

the closer the spread to the sp the higher the margin req

the further distance between strikes the same

and also the further out in time the series the same

volatility of the underlying will also affect the requirements

builder2818 · 13 April 2009

cutz said:
Correct, if you're using cash only as margin, so in effect commsec keeps the net premium then deducts the outstanding amount from your bank account (to submit to the OCH).

Is there a maximum amount of margin that can be taken before you can be exercised. The ASX calculator only shows a stock prices below the sold option price.

sails · 13 April 2009

Haven't read through the last posts in detail, so apologies if I'm off the mark here. I always thought the margin for credit spreads is the difference between the two strikes less any credit received? Or does Commsec have a different policy?

That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing). Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).

I was taught the debit in a debit spread is the same as margin in a credit spread.

cutz · 13 April 2009

Yeah Sails,

Commsec have a different policy, they use double the figure that's required by the OCH as calculated on the asx website. So using todays figures a May expiry 1 contract BHP 30/28 put credit vertical requires $1348 in margin, commsec will use a figure of $2696.

cutz · 13 April 2009

On a side note Sails confirming what you have already stated, when i placed my first trade with IB i set up a 2 contract bank put credit vertical to test the waters and see how they calculate margins and the required amount was exactly the difference between strikes by no of contracts, i was pleasantly surprised as its the way it should be.

jackson8 · 13 April 2009

sails said:
Haven't read through the last posts in detail, so apologies if I'm off the mark here. I always thought the margin for credit spreads is the difference between the two strikes less any credit received? Or does Commsec have a different policy?

That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing). Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).

I was taught the debit in a debit spread is the same as margin in a credit spread.

hi sails
using the asx calc.
a credit spread always brings up a margin payable while a debit spread requires no margin and the margin payable does not equate to the same position as a debit spread

a question something that relates to my earlier post

are all brokers required to utilise the asx margin requirements or can they implement their own policies ?

builder2818 · 13 April 2009

sails said:
Haven't read through the last posts in detail, so apologies if I'm off the mark here. I always thought the margin for credit spreads is the difference between the two strikes less any credit received? Or does Commsec have a different policy?

That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing). Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).

I was taught the debit in a debit spread is the same as margin in a credit spread.

This is what I always thought. I just wanted clarification. Online broking would be more favourable in the case of the cost of being exercised. I can't see why comsec need to double the margin on spreads, then have to give it back to you regardless if the option expired worthless or not.

sails · 13 April 2009

jackson8 said:
hi sails
using the asx calc.
a credit spread always brings up a margin payable while a debit spread requires no margin and the margin payable does not equate to the same position as a debit spread

That's correct - debit spreads require no margin. They are fully paid for up front.
(NB: ITM Call debit spreads can go wrong on the day before xdividend if the short call is assigned leaving one short the stock on xdiv day and being liable for the dividend.)

a question something that relates to my earlier post

are all brokers required to utilise the asx margin requirements or can they implement their own policies ?

I'm not sure, but I think the ASX margins are the minimum and I also think brokers are allowed to take more in margins if they want. The credit spreads I have traded have always been the difference between the strikes less credit received.

If the ASX margins are less than that - perhaps some brokers are OK to take the lesser margin, but it would be prudent to ensure you have any remaining amount on hand should it be required. I'll have a look in IB sometime when the market is trading and see what they take in margins for credit spreads.

sails · 13 April 2009

builder2818 said:
This is what I always thought. I just wanted clarification. Online broking would be more favourable in the case of the cost of being exercised. I can't see why comsec need to double the margin on spreads, then have to give it back to you regardless if the option expired worthless or not.

Yes, not sure why Commsec would double the spread margins. Maybe so they have extra money to cover their horrendous stock fees if you get assigned? Or am I being facetious?

jackson8 · 13 April 2009

sails said:
Yes, not sure why Commsec would double the spread margins. Maybe so they have extra money to cover their horrendous stock fees if you get assigned? Or am I being facetious?

they are probably counting on us making bad or misguided trades especially seeing as their site is more suited for the inexperienced or learners and want to make sure they get their money back.

builder2818 · 13 April 2009

I don't know if I am reading the ASX margin calculator right or not......Under the margin table it has the premium margin: $x, risk margin: $x and total margin: $x. I understand this but is that the total margin from the day the spread was placed or is it the most you would have to pay in margins for the whole month?

The understanding margins booklet explains that the margins are calculated daily based on the options price. If you have sold a PUT and bought a PUT, if the stock continues to fall against you does the bought PUT make up for any of the margins that are recalculated to be debited from you?

I ask this because I have written naked puts before and comsec take an initial margin off you which is 2x the ACH margin and the stock has fallen over a few days and they continue to take more money. If I had bought a PUT would I have received a credit which would effectively cancel any further margins?

jackson8 · 13 April 2009

builder2818 said:
I don't know if I am reading the ASX margin calculator right or not......Under the margin table it has the premium margin: $x, risk margin: $x and total margin: $x. I understand this but is that the total margin from the day the spread was placed or is it the most you would have to pay in margins for the whole month?

The understanding margins booklet explains that the margins are calculated daily based on the options price. If you have sold a PUT and bought a PUT, if the stock continues to fall against you does the bought PUT make up for any of the margins that are recalculated to be debited from you?

I ask this because I have written naked puts before and comsec take an initial margin off you which is 2x the ACH margin and the stock has fallen over a few days and they continue to take more money. If I had bought a PUT would I have received a credit which would effectively cancel any further margins?

hi
sounds like you are reading correctly
they are recalculated on a daily basis and your account with commsec will be credited or debited each day
because it is a spread you are correct in that the bought put produces some credit against the solds debit so their may be some variation from a day to day basis but it should not represent too much
to get an idea of how it changes go back to the page on the asx where it shows the positions and adjust the price in the sp value box either up or down then press recalculate and this may give you an idea of the change

jackson8 · 13 April 2009

builder

make sure that after you have entered added your positions to the main page that you click on the portfolio button this will bring up a page which allows you to see your overall margin position and also allows you to add things like shares you may have as collatoral into the equation

Credit spreads with Commsec

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