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Portfolio margin
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Portfolio margin

  #1 (permalink)
Elite Member
Sofia, Bulgaria
 
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Portfolio margin

Hi all,
Is there anyone who is familiar with Portfolio Margin? My specific question is: what is logic / math that force initial margin to change over time. For example: when opening a position (Short Call) with DTE33 and 10 delta, initial margin is about $ 5500 but with approaching expiration it changes and it can reach $ 9,100 or more. This example is with equal (no change) other parameters, i.e. I only change DTE and I use so-called sticky delta method to find margin change.

Thanks in advance,
Ivo

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  #2 (permalink)
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  #3 (permalink)
 Vendor: www.probabletrades.com 
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I have a portfolio margin account. I'm not sure how they calculate it. It's best to ask your broker because it may vary from broker to broker.

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  #4 (permalink)
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shodson View Post
I have a portfolio margin account. I'm not sure how they calculate it. It's best to ask your broker because it may vary from broker to broker.

Thank u for your fast answer.

Yes i know it may vary and i have vague idea how they calculate it. I dont worry how broker calculate it coz it is what is it but what bothers me is the fact that the initial margin can be changed 2-4 times during the time of the trade.

i asked my broker but they not give me good enough answer and they say that exact formulas are secret ......

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  #5 (permalink)
 Vendor: www.probabletrades.com 
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alchemist74 View Post
Thank u for your fast answer.

Yes i know it may vary and i have vague idea how they calculate it. I dont worry how broker calculate it coz it is what is it but what bothers me is the fact that the initial margin can be changed 2-4 times during the time of the trade.

i asked my broker but they not give me good enough answer and they say that exact formulas are secret ......

That's one of the problems with naked short options: your mask risk is infinite. If you sold a spread your risk would be measured and not change over time.

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  #6 (permalink)
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shodson View Post
That's one of the problems with naked short options: your mask risk is infinite. If you sold a spread your risk would be measured and not change over time.

OK i understood that but must be math formula and logic behind this margin change.

Thanks for your help

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  #7 (permalink)
Market Wizard
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alchemist74 View Post
OK i understood that but must be math formula and logic behind this margin change.

Thanks for your help

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

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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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myrrdin View Post

I recommend to sell naked OTM options with another broker.

Best regards, Myrrdin


hi Myrrdin,

can u recommend me good broker for selling naked OTM options mostly on US indices and stocks, different from TOS/DTA and IB.

Thanks

Ivo

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  #10 (permalink)
Market Wizard
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alchemist74 View Post
hi Myrrdin,

can u recommend me good broker for selling naked OTM options mostly on US indices and stocks, different from TOS/DTA and IB.

Thanks

Ivo

I trade short options with RJO and just open an account with DeCarley for the same purpose. But both do not trade options on stocks, as far as I know.

Best regards, Myrrdin

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