Discuss Options strategies

[revhappy]

Hi All,

I have a question regarding margin locking for short equity options.

I noticed IBKR locks away my cash margin for short equity option positions. I can tell this from the available funds and buying power figures completely subtract the margin used for short equity options positions.

I thought short equity options margin is more like collateral and doesn't have to be cash. It could be stock positions. Then why does IBKR lock away my margin?

In case of Saxo, it is even more weird, they charge a carrying cost for short equity options.

So I am really lost I want to use my long term etf positions as collateral against short equity options. I don't want to lock away cash margin nor pay any carry cost. Can some learned people in this domain shed some light?

Thanks very much!

 

[ashethen]

your equity collateral is stock or options?

the collateral must be the same underlying as your short option

also for options collateral, it must have the same or a later expiration date than your short options

 

[revhappy]

your equity collateral is stock or options?

the collateral must be the same underlying as your short option

also for options collateral, it must have the same or a later expiration date than your short options

Thanks. My understanding about short options positions was that it was kind of a free ride without any locking up of margin in cash or having to pay margin interest.

I don't know why I got that impression, that short options margin can be anything liquid-able in the portfolio, so I could efficiently use the margin for buying bonds or stocks instead of keeping it in cash.

 

[Shiny Things]

Thanks. My understanding about short options positions was that it was kind of a free ride without any locking up of margin in cash or having to pay margin interest.

I don't know why I got that impression, that short options margin can be anything liquid-able in the portfolio, so I could efficiently use the margin for buying bonds or stocks instead of keeping it in cash.

Ahh - no, Ashethen is right.

This is not even an IBKR rule, it's a US market-wide rule: brokers have to hold cash collateral of at least the value of a short options position, plus a bit extra in case the market gets funky. And AFAIK the only acceptable collateral is cash; some brokers will let you hold it as US govvies.

That idea of selling options and then using the premiums to lever up even more is the sort of thing that used to blow people up left right and center, especially back in the day when selling ITM options wasn't quite so morally suspect. The NAB options guys back in the day were pretty big into that, selling 90-delta options as a way to borrow cash on the cheap, and look where that got them.

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There's a subtle difference between "collateral" and "margin calculations", though.

The collateral—the actual stuff you have to post—generally has to be cash.

If you have portfolio margining enabled, though, then you can reduce the amount of cash you have to hold against a short option position—e.g., having long stock + short call has a lower margin requirement than the outright short call.

The long stock leg is not technically "collateral", though; it's a hedge.

 

[Newbyib]

I believe your margin decrease is because you cannot apply the entire etf holdings but only 50% (I think) for Reg T requirements.
for covered calls positions ie Long stock short call on the same underlying of the same amount, no margin requirements.

 

[revhappy]

I have closed my IBKR account and using Saxo now. Saxo by default offers portfolio margin. For equities, they don't allow leverage. For options they make your use portfolio margin, even if you don't need, and charge you carry cost, benchmark+0.5%.

I have some 150k sgd in Saxo which I have used entirely to buy ES3 and then I used portfolio margin to sell 1 Jan 2021 60 strike XLE put.

 

[Newbyib]

I have closed my IBKR account and using Saxo now. Saxo by default offers portfolio margin. For equities, they don't allow leverage. For options they make your use portfolio margin, even if you don't need, and charge you carry cost, benchmark+0.5%.

I have some 150k sgd in Saxo which I have used entirely to buy ES3 and then I used portfolio margin to sell 1 Jan 2021 60 strike XLE put.

I used to be on Optionsxpress then CS, now IB. They don’t charge me for portfolio margin. I have multiple Covered Call Positions opened and simultaneous iron condor, strangles and credit spreads opened which are margin against the covered call positions but no interest charge. In fact when I am not fully into equity positions, I earn interests on the free cash. Only issue is that USD is performing badly against SGD for the past months.

 

[revhappy]

I used to be on Optionsxpress then CS, now IB. They don’t charge me for portfolio margin. I have multiple Covered Call Positions opened and simultaneous iron condor, strangles and credit spreads opened which are margin against the covered call positions but no interest charge. In fact when I am not fully into equity positions, I earn interests on the free cash. Only issue is that USD is performing badly against SGD for the past months.

I see. I want to keep my core portfolio in ES3, since IB doesn't allow ES3, it is a no go.