James wrote: Did I understand it right from that broker that if I have say 10k long I can short 20K of something ? is that 10K long
good to long another 20K in margin ? ( like it would put me 30K
long )
James,
That's not how I understand it. I believe you mixed Initial Margin Requirement with Maintenance requirement. Initial Req requires 50% margin, i.e. when you have $10K cash, you can buy $20K worth of equity, say 2000 shares of XYZ @ $10 a share(i.e. your stock buying power is $20K), or $10K worth of option on margin. That is essentially the 50% margin requirement.
After you bought the $20K stock, your Equity/Margin ratio is now ($20K-$10K)/$20K = 50%, and your buying power is 0. The maintenance requirement is now in effect, which means you should always maintain that this ratio is > 30% at Waterhouse (RegT calls for 25%, and other broker requires 35%, as did Waterhouse up until Jan 1999).
So let say the stock you own, XYZ, retreat to $7. You now have $14K worth of equity and a margin balance of $10K, so your ratio is now ($14-$10)/$14 = 28%, and that should trigger a margin call.
Options: Your option buying power is determined by dividing you stock buying power by 2. Short sale and Naked puts increase your margin requirement by the amount of the short sale or the value of the assignment of the puts (or $25K whichever is less).
Covered calls do not affect your equity at Waterhouse (well, the short call does, but the stock does not). At Fidelity, your equity value is reduced by the amount of the short call that is ITM.
Debit Spreads do not have margin requirements at Waterhouse. Credit Spreads have a margin requirement equal to the value of the spread. It has its own initial requirement as stated in the Margin booklet.
As for shorting, RegT says that you can short up to your stock buying power (or 150% = 50% of margin in the long purchase above + proceed of sale). After the initial requirement, the maintenance requirement is calculated similar to the long position mentioned above.
Hope this helps,
//V |
