Selling ITM S&P Calls

Discussion in 'Options' started by Arnie Guitar, Feb 7, 2015.

  1. In another forum I participate in, last Friday a member wrote, "SPX Apr15 2000 Call sold 48 contracts @ 65. It was the most they would let me sell uncovered."

    I'm a little confused on this.

    1. At the time he sold them, they were ITM. I thought when you sold ITM options, you can be assigned at any time?

    2. Margin requirement: I mean, the potential loss is infinite, what would the margin requirement be for that particular trade? If the S&P moves against him like it has, wouldn't he get a margin call?

    In general, what is the margin requirement for selling uncovered calls? I can understand selling uncovered puts where there is a defined risk, but uncovered calls, the potential loss is unlimited.

    Thank you,

    Arnie
     
  2. FSU

    FSU

    The SPX options are European exercise, so no early assignment. They are cash settled on expiration.

    Margin will depend on what type of account you have, a Reg T account, a Portfolio Margin account, etc. It will also depend on your clearing firm. For example Apex requires enough money in your account for a 25% up move and a 50% down move.

    Generally though, the margin is substantial for even 1 uncovered SPX option ($30,000 would be a good general estimate.)
     
  3. tom_czr

    tom_czr

    BTW You can be assigned any time even if option you have sold is not ITM. Only probability of assignment is lower with OTM options... When delta is closer to 1 (-1), probability increases... Plus there are special situations like dividends. Of course this is not true for European style options...
     
  4. rmorse

    rmorse Sponsor

    I assume you have a PM account because reg-t Margin would be enormous. See attached for selling 48 similar calls for this week. This is the OCC min, not what your broker will require ($556,657). They can require whatever they want above the OCC value. Who is your broker?

    Reg-T example
    Position
    Short 48 Jan 2000 call(s) at $65.00
    Underlying stock at $2,055.00
    Call is in-the-money

    Initial Margin
    Margin requirement: $2,284,800.00
    Proceeds from sale of short call(s): $312,000.00
    Margin call (SMA debit): $1,972,800.00
     
  5. Thank you, everyone.
    Robert, just to be clear, I did not do this, someone I know on another internet forum says he did this. From his posts, I find him to be a straight shooter and have no reason to doubt that he did this. I don't know what kind of account he has, nor would I ask, that's rude.

    Me? I'm just another shlepper losing money doing credit spreads with a retail broker, a one trick pony... :-(

    But it's entertaining... ;-)
     
  6. Well, I think I just embarrassed myself... I didn't know what a PM account was and had to search around...does that mean paper money? If so, this guy has the money to do it for real, he's a heavy hitter, lots of real estate, car dealership, planes...
     


  7. PM is Portfolio Margin https://www.interactivebrokers.com/en/?f=margin&p=pmar



    :)
     
  8. rmorse

    rmorse Sponsor

    Portfolio Margin is a risk based margin system developed for larger customer accounts where the owner has more experience and can understand the risk associated with more leverage.In a simple example, if you want to purchase $100,000 of IBM, your requirement would be

    in a Cash account: $100,000
    in a Reg-T margin account: $50,000
    and in a PM account: $15,000

    As you can see you can control a lot more shares, take on more risk, with a PM account. I hope this helps.

    Bob
     
    Arnie Guitar likes this.
  9. Bob,

    Thank you.

    Arnie