• Australian (ASX) Stock Market Forum

Portfolio Margin A/c in USA

Discussion in 'International Markets' started by mjim, Jun 19, 2017.

  1. mjim

    mjim

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    "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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    "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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    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

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    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.
     
  13. mjim

    mjim

    Posts:
    124
    Likes Received:
    3
    Joined:
    Jun 6, 2016
    last question ....in that example so the requirement was $800 instead of $1625 becasue you had portfolio margin but then that raises the question "who pays the $1625 to the option seller?" becasue in T+1 the option sellers has to get paid 100% of the premium and that a/c could be with a diff broker meaning real money has to be transferred via teh exchange from one client broker to another clients another broker. does your broker fork out that remaining $825! until you close the trade! can you message me which broker you are using?
     
  14. minwa

    minwa

    Posts:
    642
    Likes Received:
    61
    Joined:
    Oct 10, 2012
    The exchange. Our counter party is the exchange, always (on ETOs). They have 2 sides of ledger, one for seller one for buyer of the same contract. They charge and collect margin from both sides and handle the debit and credit of cash after the trade has been closed. They are always balanced out. The exchange is happy with the leverage (margin) they allow because as one account loses the other gains.

    An option seller only sees his cash value in the account go up, not the net liquidation value. On the grand scheme of things, cash value is not important. Just a digital value that is adjusted into liquidation value as trades close. Try withdrawing it - it will get rejected, therefore there isn't really any extra cash paid to the seller. It is just a pretty term made up by education sellers.

    I am using IB. Used to use OX and GAIN.
     
Loading...

Share This Page