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Portfolio margin

  #8 (permalink)

Sofia, Bulgaria
 
Trading Experience: Advanced
Platform: IB,TOS
Broker/Data: IB
Favorite Futures: Options,ES,6E,ZB,SPX,RUT,CL
 
Posts: 47 since Jul 2010
Thanks: 6 given, 42 received


myrrdin View Post
I assume you have this problem with IB.

It is my experience with IB that they have unreasonably high margins for short OTM options, and that it is impossible to predict these margins. Sometimes margin for short OTM options is higher than margin for outright futures.

IB generally does not like traders to sell naked OTM options. The reason might be that they want to close positions automatically using a market order instead of a margin call. For OTM options, a market order for buying back a short option usually ends up with an unreasonably high price.

I recommend to sell naked OTM options with another broker.

Best regards, Myrrdin


Thank u very much !

Yes i have that issue with IB but i tested PMargin in TOS and looks like there is same. I even asked Tom Sosnoff and he redirect me to someone from DTA and answer was unclear. They use sticky delta and sticky strike somehow.

Here is answer from DTA:

Hi Ivo,



In Portfolio margin we use an industry standard option pricing model ( Bjerksund-Stensland for equities and Black - Scholes for European options. I don't have specifics on your option positions but one of the important variables in the model is volatility and time to maturity, the strike price ,and the current underlying price..



We had a huge range in volatility in October (Vix went from 14 to 31(intra-day) and back to 14... And this could cause fluctuations in portfolio margin requirements as changes in the steepness of the volatility curve ..



AND

The firms model option pricing model uses a two curves volatility approach a Sticky Strike & Sticky Delta, as well as, concentration logic based on EPR & PNR.. I have described the methodologies in above attachment ..



As to prevent your account from being in a Portfolio Margin call , you can use the Tos analyze tab for back testing or "what if scenarios " by raising or lowering the underline security ,volatility, days to expiration to estimate the exposure to your option positions..



This would help you estimate an cushion so your account is not to leveraged in case of spiked volatility and market moves...

================

I tried to find a correlation with delta, Vega, implied volatility and with P &L but I did not find any significant correlation. Also I tried to examine the percentage change in the underlying and implied volatility but without success.
How can I calculate the expected change in portfolio margin.
This question is crucial for determining the amount of capital used and avoid liquidation of positions.

Will be great if we can find answer to this problem.

Thank u very much about IB selling OTM info. I realized that IB margin for OTM naked sold options are higher than TOS Portfolio Margin for same position but i didnt know why.

Thx again,

Ivo

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