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Portfolio Margin A/c in USA

Discussion in 'International Markets' started by mjim, Jun 19, 2017 at 7:50 PM.

  1. mjim

    mjim

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    In following type of trading does it matter if the a/c is Cash a/c / Reg T margin a/c or Portfolio Margin A/c ( all US market)

    1) Scenario 1: Say one has 10K in a/c and is long an Option worth 10K ( call / put does not matter)
    Given that to be long an option is a limited risk strategy one has to have 100% of that money upfront.
    If that is true then having a portfolio margin a/c has no real advantage is it?
    Please correct me if I am wrong
    1) Scenario 1: Say one has 10K in a/c and is long an Option Spread worth 10K ( call / put does not matter)
    Given that to be long an option spread is a limited risk strategy one has to have 100% of that money upfront.
    If that is true then having a portfolio margin a/c has no real advantage is it?
    Please correct me if I am wrong
     
  2. minwa

    minwa Well-Known Offender

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    You will have lower margin requirements typically with portfolio margining. A long option/spread "worth 10k" will not require 10k margin with portfolio margining.

    Advantage (that many will not need, but nevertheless it is an advantage) ? Yes when risk is managed properly, it allows you more positions. Do most people require this ? Not really unless you max your account out with margin in straight options/spreads.

    For option sellers it is a advantage for higher potential returns (also losses).
     
  3. mjim

    mjim

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    "You will have lower margin requirements typically with portfolio margining."
    Yes that is true for naked option selling or combination of underlying + option like Covered calls , I understand that but when it is a straight forward Option purchase ( hypothetically say one qualifies for PM with 110K in a/c and say the entire 110K worth of Options are bought , then sicn eteh rule is you must have the entire purchase price of an option premium . and if this is true then it does not matter if that a/c is cash a/c Margin T account or PM a/c! becasue you have to have the entire premium amount on table! correct!
     
  4. minwa

    minwa Well-Known Offender

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    Correct of course you can do the trade in both accounts.., but you are at advantage (margin wise) to be with P/M.
     
  5. mjim

    mjim

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    How though? assume a scenario if it is only purchasing options, Is it not true that purchasing option means you must have 100% of your own money! so for example 1 ES futures ATM option cost 30 point x$50 = $1500 you cant get leverage within hat $1500! you cant just have $500 of your own and broker allows you to purchase the $1500 option! In case of other unlimited risk strategy Yes PM margin helps so for example Covered Calls without PM will require more capital that I understand , as explained here
    https://tickertape.tdameritrade.com/thinkmoney/2015/07/portfolio-margin-102209
    But this article does not show the scenario I am talking about ,, By the way let me explain why I am trying to find this out a US based LLC is offering a LLC partnership where few traders put in say 25K in a LLC held a/c with sub accounts for each trader,,, so with few of them together the LLC can easily have more than 110K required for PM account.. ok so far so good , BUT he then says they will only allow Limited risk strategy and only in Option...ok that is fine too , meaning Long Option or Long Option spreads... NO stock purchasing or things like CC... Hence my question! if is is only Option long then where does having a part of PM a/c benefit!
     
  6. minwa

    minwa Well-Known Offender

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    That IS the purpose of margin. Not to have to put up 100% of your own money, yes ? It applies to straight option too.

    Buying a ES Aug 2450 Call costing 32.5 points only requires me to put up $8k margin. Not sure why you are questioning margining doing its job. It applies in straight calls/puts.

    I am assuming you are talking Hedge Capital Group ?
     
  7. mjim

    mjim

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    "Buying a ES Aug 2450 Call costing 32.5 points only requires me to put up $8k margin"
    32.5x50 = $1625 to purchase 1 call, so first of all I dont know how do you get $8000?
    besides that to purchase the above mentioned call, is it not true that one has to have the $1625 of his own!
    reg witch group I will PM;)
     
  8. minwa

    minwa Well-Known Offender

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    Oops fat finger, meant to be $800.

    I have other positions in the account though, which is when portfolio margining kicks in even further by considering you diversified.
     
  9. mjim

    mjim

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    32.5 x 50 = 1625 ... still dont understand how you arrive at $800 and also in my examples I was saying only option buying ...PM does in other situations sure but in straight forward long options how does it help?
     
  10. minwa

    minwa Well-Known Offender

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    I don't understand the exact formula behind P/M margin either, I don't think it is publicly available. It's just lower, which is an advantage in the end.
     
  11. mjim

    mjim

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    I thought you knew how pM works!
    so that $800 example did you see that in a PM enabled a/c or your guess?
    "It's just lower, which is an advantage in the end.: Yes yes it does as shown in that article ,,,,but does it apply to Log options?. which are supposed to be fully funded positions ! Has anybody heard of paying only partial premium for an option!
     
  12. minwa

    minwa Well-Known Offender

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    Na I don't know exactly how to calculate it. I only know it lower your margin requirement as you asked in your first post.

    $800 is what I need to pay, with my current positions on. It will change as I close my positions out or add new positions.

    "Paying only partial premium" is exactly the same as "paying only partial share price" in share margins.
     
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