Mastering Margin: Tips from an Options Pro

Mastering Margin: Tips from an Options Pro

⏰Chapters ⏰
0:00 Intro
0:49 Margin usage poll results
1:47 What is margin?
2:16 How does margin work with options
5:09 Margin required for put option selling in TSLA
8:06 Margin requirement in TSLA if it dropped 30%
9:46 Why brokerages increase margin requirement in volatile markets
10:12 Difference in Reg-T and Portfolio margin
12:33 Estimated margin requirement of SPY (S&P 500) if it dropped 30%
15:16 Lessons I learned from trading options with margin

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In this video, I’m going to answer your questions about margin: How does it work? When to use it, when to avoid it, and what would happen in a 30% market crash if you were using margin? At the end of this video, I will also share with you some lessons I’ve learned by using margin over my years of option trading.

Margin is one of those things that can be difficult to understand. I’m speaking not only because of the comments you share with me, but also from my personal experience. Margin usage, how far to push it, whether you should use it at all and whether it’s good or bad, is a very common topic with option traders. Over the years I’ve been trading options, at times I have used margin in a big way. But now I either don’t use it at all, or if I do, it’s for a very small percentage of my account and for a very short period of time. I’m going to share with you what I know about margin to hopefully help you make better option trading decisions.

First and briefly, what is margin? There are really two types of margin. There’s margin in which you can use some of the brokers money, on loan to buy stocks. Then there’s the type of margin that I want to talk about in this video. That’s the margin requirement for us option traders when we sell options.

There are actually two types of margin for us option traders. There’s the type we have been looking at, regulation T margin and there’s a type of margin called portfolio margin. Last time I checked, portfolio margin became available to a trader in Interactive Brokers once their account size reached $100,000. It then had to stay over that $100,000 in order for it to remain under portfolio margin. The difference is that instead of looking at each position’s margin requirement separately, it looks at your overall portfolio. As a result, with portfolio margin you’re potentially able to trade with greater more leverage. Let me show you what I mean.

But what would happen to our margin requirement if the S&P 500 dropped 30%? Let’s talk through this scenario using TSLA and then the S&P 500.

There have only been a couple of times in my option trading career in which I hated what I was doing. Every single one of those times happened because I was using too much margin! So my advice to you would be to consider avoiding the use of margin. But if it's something you want to do, please make sure to use it very carefully.

Happy investing!
Randy Perez

#highnetworth #optionstrading #tradingoptions

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Disclaimer: I am not a financial planner and am not offering investment advice. This is an opinion channel only and should not be taken as any form of financial advice. The ideas and strategies that I discuss should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional. There are financial risks involved in taking on any monetary transaction that I discuss in my videos. I may receive a small commission from the purchase of any item from using the links listed above.

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[AtlasD]

This is the only video I found on YouTube that answers all my questions about margin. Ty

[andreassmidelov]

Thoughts and prayers to those 9% who maxed out their margin these last few months :O Great explanation!

[adamrafal]

Discovered this channel two weeks ago! Randy imparts A LOT of wisdom!

[robbyrucker]

I'm brand new to all this. All your video's are blowing my mind. Your deeper insight on how to trade is true great information with no BS. I'm gonna spend all summer with my wife the computer guru. To teach our family how to trade.

[EvanEvansE]

Very important points! It should be noted that a 30% drop in the market has always only occurred across many days. Not very many days albeit. The average for largest down days is between -8% and -12%. Crushing for sure. And within a few days could reach -20%, -30%, -40%, or more. Note: one time, a super outlier crash day happened in 1987, black swan of black swans, and the Market dropped -20%.

[butterfly]

Excellent video. Thanks for this info. I have not heard anyone else discuss the surprise margin requirement increases by brokerages. That means no margin for me!

[XXJRAXX]

The most useful margin content on Youtube!!!

[mixnmichael]

I got a feeling those margin requirements may change this week! Glad I never got margin.

[crazychicken]

Dude these videos are great even for some what experienced person like me.

[jasminecats]

I only sell puts for stock I can actually afford to buy even though my broker only typically requires 16% or so for collateral so essentially my puts are cash secured. But thank you for the explanation

[FREEFROMITALL]

Awesome video. Really appreciate your conent! thanks for putting it out there!

[brodyllc]

Thank you sir. Thank you for your input.

[gramos]

How do I know if I'm using margin in my broker with naked puts? Watching the buying power?? Excellent video!

[CorePositionTrading]

Very good video! Love the work you put into this for us ... next time I'd like to know how much the various brokerages that you use charge for that margin ... is it daily, annually ... this varies and it can be expensive and not favorable when selling premium ... thanks again!

[nicholaslws]

Really insightful video as always Randy! Really loving your broken explanations. Could you perhaps explain or cover how margin is calculated for Put or Call spreads? Would the credit requirements for such spreads just be the difference of the 2 strikes? Thanks!

[beanwithbaconmegarocket]

3:40 I believe you are essentially using your margin here. Those short positions have margin requirements. To me, "using margin" means that if I get assigned on my positions I would not be able to cover it with my availabile cash

[raztech]

i do a naked put on tesla in delta 0.1 use margin. but only for 1 or 2 week . you not talk abut that. but when tesla down you can but your put.

[deepakaralumalligesubbaray]

Great content! What should happen if you overshoot your margin? will my trades be automatically squared off?

[EarthQuakeWatch]

Your ending comment is you don’t recommend using margin but if we do, use a small amount. What would you consider a small amount? My math says 1.2 to 1.3 (20-30%) is decent to not get a call but does some damage on a big decline. Considering 1.2 usage.

[Alex.UA]

Hey brother, sweet video! I'm still a little confused on margin could you help me out? Here's an example, I have $5000 in a margin account and I buy $10, 000 worth of Tesla. So that's 2:1 leverage, but I'm wondering if that is ok to do? Would I just have to make sure it doesn't drop below $5000?