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Energetic
Forum Captain

Total Posts: 1505
Joined: Jun 2004
 
Posted: 2019-10-25 15:20
Let's assume I have 1000 shares of SPY in my account and I also want to sell a put on SPY, one contract.

I know what will happen in my individual account: the broker will want to set aside enough cash to cover the payoff in the event that the underlying goes all the way to zero, irrespective of the volatility and maturity. That will force me to sell 100 shares or borrow on margin to maintain the delta 1 exposure on stock position. Both ways, I'll have to account for it when computing my performance results.

What if I have a portfolio margin account? Will they also charge me something too or recognize that I'll have enough equity in my account to cover the payoff under any imaginable circumstances?

For every complex problem there is an answer that is clear, simple and wrong. - H. L. Mencken

nikol


Total Posts: 830
Joined: Jun 2005
 
Posted: 2019-10-25 23:05
It depends on your history with the broker. No additional charges, except that you increase probability of ruin (which is good for broker). Portfolio margin account gives you better leverage, but if you use it with negative gamma (which creates opposite effect to pinning), then it can be explosive. I observed such explosions two times.
In the first case the entire department (~50 ppl) was dismantled and sent off to the street...
The second time, trader was demoralized and being sent to 3 months holiday (the man was good, the desk was like a family) giving him a chance to recover and come back.

take care.

Energetic
Forum Captain

Total Posts: 1505
Joined: Jun 2004
 
Posted: 2019-10-28 15:06
Thanks!


For every complex problem there is an answer that is clear, simple and wrong. - H. L. Mencken
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