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Yield on Collateral in an Option Selling Portfolio
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Yield on Collateral in an Option Selling Portfolio

  #1 (permalink)
Elite Member
Santa Barbara, CA USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: Futures Options
 
Posts: 18 since Oct 2016
Thanks: 9 given, 4 received

Yield on Collateral in an Option Selling Portfolio

Does anyone utilize collateral other than cash in an option selling portfolio? Examples could include treasuries, money market, dividend yielding stocks, etc.

In addition to obtaining yield, minimizing the "haircut" on available margin is critical to ensure continued viability of option trading and the associated volatility. For example, obtaining a 1% yield with 100% margin available could be much more appealing than a 3% yield and a cost of 40% of available margin (leaving only 60% margin for trading).

The CME seems to have collateral parameters listed here:

Financial and Collateral Management

I realize that we are in a low interest rate environment but I think this could be an interesting discussion from a strategic perspective.


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  #2 (permalink)
Elite Member
Steubenville Ohio
 
Futures Experience: Intermediate
Platform: OX, OEC, RJO
Favorite Futures: Options on Futures
 
Posts: 216 since Sep 2012
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bill20 View Post
Does anyone utilize collateral other than cash in an option selling portfolio? Examples could include treasuries, money market, dividend yielding stocks, etc.

I have in the past. My broker would allow me to buy short-term treasuries with money that would have been sitting in my account for margin, but I could only do a portion of my account balance (I can't remember). When the treasuries would mature I could purchase they next round. If at any time things started getting tight on margin I would have been forced to sell those treasuries early in order to get those funds back in my account to cover the margin.

I'm not sure if there are many brokers who do this anymore.

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