On 10/3/14 the study had a balance of $210,125. It acquired 101 Jan 15 1520 ES puts. I put the cost of $7.50 each at the beginning so taking $210,125 and subtracting (101 X 7.50) $757.50 = $209,367.50.
On 10/15/14 the price of the options changed from 3.55 to 12.90. A loss of $467.50 each or $47,217.50 for 101 of them.
That changed the account balance down to $209,367.50 - $47,217.50 = $162,150.
The IM for the position went from $694 each to $1,360 each. That's a $666 increase. For 101 of them times $1,360 the total IM required is $137,360.
On 10/15/14 the account balance was $162,150. The IM required was $137,360. The IM is 84.7% of the account balance (the Max % balance column on the table is off. The Lowest Buying Power column is correct. I will fix it.).
The position did not go on margin call. It did not hit the exit point of the strategy.
The following 6 users say Thank You to ron99 for this post:
Great thread. Slight tangent. Anyone have thoughts if this method ron99 describes in last few pages would be viable using IB? I live in Canada so my choices of a broker who does futures is extremely limited.
I have just been reading some other threads of IB liquidating clients accounts when margin usage increased.
My intention would be to trade it as a covered spread that has similar spread ROI to the naked option. I assume that would help keep them from aggressive liquidation but I am not sure. I would do as ron99 suggested and keep 3x reserve in cash. I am just not sure if that is enough for IB
Feel free to PM me if this is 2 far off tangent of the thread
Last edited by Chubbly; May 24th, 2015 at 01:35 PM.
From what I have seen IB charges at least triple SPAN minimum margin. So your ROI will be much lower.
As long as IB keeps the same percentage above minimum, you should be OK as far as riding it out. If they increase their percentage above minimum during high volatility, then it would be ugly and costly.
Can you check to see if IB IM for spreads is the same amount above minimum as they charge for naked options? That would make a difference.
The following user says Thank You to ron99 for this post:
I did a quick test and the naked option was $2950 in margin. Creating an extremely wide vertical to get almost as much credit (1675/1400) was $900 in margin. TOS was showing $419 required
If they keep it at that number I am OK, but I am a bit worried they won't and there is no way to back test what IB will do in a volatility spike. So I may be looking for a more predictable broker. (any suggestions for a Canadian please PM)
very interesting thread, thanks ron for sharing you experience!
I have a question for you guys, I'm trying to open an account on optionsXpress and my main goal was to trade futures (starting with small trades to get experience), but I receive this mail:
Thank you for your interest in futures trading. We have received and reviewed your application.
Based on the information you provided on your futures application, we are unable to offer futures trading at this time (please refer to our Futures minimum requirements FAQ for more information). Keep in mind that this notice only applies to futures trading. You are still able to trade stocks, options, mutual funds and bonds in your account.
We apologize for any inconvenience this may cause you. If you have any questions regarding this notice please feel free to contact us by calling at (888) 280-8020 or via Live Help.
Do you guys have any clue on why they denied this application? Any recommendation? I'm from Brazil but I live in Chile, maybe this is the reason?