Off Topic: Weird margin behavior?
This is kind of strange... I'm holding some stock and some long calls in my brokerage account, and their market values are going up. But, my Percent Equity, as reported by my broker, is going down! If it hits 50%, I'll get a margin call! Why is PE calculated this way?
Here's the calculations, as far as I can tell:
Percent Equity (PE) = Net Equity (NE) / Market Value (MV)
NE = Total Equity (TE) - Option Market Value (OV)
TE = Cash (C) + MV
MV = Stock Market Value (S) + OV
When you reduce all this to cash, stock value, and option value, you get:
PE = (C+S) / (O+S)
This means that PE goes down when O goes up!
Specifically, I'll get a margin call when PE >= 50%:
1/2 >= (C+S) / (O+S)
O+S >= 2C + 2S
O >= 2C + S
If my option value becomes greater than my stock value plus twice my cash, I'll get a margin call, even if everything I own is going up in value!
This actually happened to me two weeks ago, when I bought 12 Jan 17.5 Creaf calls, which are a large proportion of my holdings. I had a margin call for one day, before the market value of those calls dropped.
Has anyone noticed this before? Why would long calls be held against me for margin calculations?
Doug. |
