What Does Portfolio Margining Mean For You - Part Two
....Continued From Part One
Portfolio Margining & Index Options
In part one, we looked at an example of how portfolio margining could benefit your equity options positions. That example outlined the substantial savings that portfolio margining could generate for a married put position.
In part two, we are examining the benefits that portfolio margin can have on your index option positions.
Example #2 - Index Straddle
Source: Fimat
Long OEX Straddle With OEX @ $694.38
Sample Position:
Long 1,000 OEX OCT 700 Calls @ $16.80
Long 1,000 OEX OCT 700 Puts @ $20.00
Traditional Margin Requirement:
100% of call and put premium= $3,680,000
New Portfolio Margin Requirement:
Gains and losses from the straddle position are calculated using both up 6% and down 8% market movements. Since these movements will only generate gains for the position, portfolio margin only requires the position minimum deposit of $75,000.
Estimated Savings Under Portfolio Margin = $3,605,000
Note: This margin amount indicates the minimum required under existing SEC rules. The prime broker may require additional margin per the firmís own guidelines"
About Mark S. Longo
Mark S. Longo is the founder of The Options Insider Inc. - a firm dedicated to providing free options information, education, news and analysis for options users. Whether it's on TheOptionsInsider.com, a leading online options destination; through Options Insider Radio, the world's only radio network for options users; or through a growing number of newsletters and live events, Mr. Longo continues to provide new ways to spread the word about options.Mr. Longo's analysis of the options market has appeared in a wide variety of domestic and international publications, including The Wall Street Journal, Financial Times, Reuters, Futures Magazine, and more. As one of the few industry commentators with practical options experience, he has developed a substantial following among industry veterans and newcomers looking for insight into this complex market.Mr. Longo began his career as an options trader on the floor of the Chicago Board Options Exchange.
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