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:
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.
