Equity Margin Test - Urgent!

[vinky5 1]

Is anyone really good with options and margin? My brokerage account is struggling bad and I need to apply for portfolio margin so they won't liquidate my assets at these very low equity prices. I answered all of the questions but I wanted to see if someone could check them for me please! They said I could use any resource other than their Margin Department Professionals. See attachments and my answers below: Thank you for input and help!!
 

My Answers:
1) D
2) C
3) C
4) A
5) A (friend says B?)
6) E
7) C (friend says A?)
8) F
9) b
10) C
11) D (friend says C?)
12) A
13) D (friend says C?)
14) A
15) B
16) E
17) C
18) B
19) B
20) D

[greenspan76 332]

3 hours ago, vinky5 said:

Is anyone really good with options and margin? My brokerage account is struggling bad and I need to apply for portfolio margin so they won't liquidate my assets at these very low equity prices. I answered all of the questions but I wanted to see if someone could check them for me please! They said I could use any resource other than their Margin Department Professionals. See attachments and my answers below: Thank you for input and help!!

...

I agree with answers 1-14, and 17-20. I don't disagree with 15-16; I just don't know the answers.

On #5, you are short the call, so it wouldn't make any sense for your option value to increase when the position moves against you.
On #7, you are short the 0.50 delta put and the underlying price goes down. Firstly, its a put so it is actually -0.50 delta. Secondly, a drop in price of the underlying causes a decrease in delta (of both puts and calls), so -0.50 - 0.03 = -0.53.
On #11, just remember that delta is supposed to represent the % chance of the trade finishing in the money. So as time passes, the % chance that an ITM option will finish ITM increases and conversely the % chance an OTM option finishes ITM decreases.
On #13, if you're short stock, selling calls doesn't hedge the position. A drop in (stock) price would help both trades and an increase in price would hurt both trades.

Edited September 25, 2022 by greenspan76

[vinky5 1]

43 minutes ago, greenspan76 said:

I agree with answers 1-14, and 17-20. I don't disagree with 15-16; I just don't know the answers.

On #5, you are short the call, so it wouldn't make any sense for your option value to increase when the position moves against you.
On #7, you are short the 0.50 delta put and the underlying price goes down. Firstly, its a put so it is actually -0.50 delta. Secondly, a drop in price of the underlying causes a decrease in delta (of both puts and calls), so -0.50 - 0.03 = -0.53.
On #11, just remember that delta is supposed to represent the % chance of the trade finishing in the money. So as time passes, the % chance that an ITM option will finish ITM increases and conversely the % chance an OTM option finishes ITM decreases.
On #13, if you're short stock, selling calls doesn't hedge the position. A drop in (stock) price would help both trades and an increase in price would hurt both trades.

Did you mean you agree with my answers or my friends answers?

 

#5 is tricky because I think it is asking for "theoretical price of the option" and they are trying to trick me by saying it is a short position.  I think my friend is correct here with answer B.  You agree that B is correct?

#7.  I calculated it the same was that you did and got 0.53 for Answer C.  But my friend insists he is correct with 0.47 for answer A.  Thoughts?

#11:  So you agree that I am correct with Answer D?

#13:  So you agree that I am correct with Answer D?

[vinky5 1]

 

I think all of my answers from the Original Post are correct except #5= B and #7= A as my friend said.  I think my friend is wrong on #11 and #13. 

[greenspan76 332]

8 hours ago, vinky5 said:

 

I think all of my answers from the Original Post are correct except #5= B and #7= A as my friend said.  I think my friend is wrong on #11 and #13. 

Well, I'm not an expert by any means and there are way smarter people than me on this forum, so another opinion would be useful. I was agreeing with your answers and not your friend's, but I misread #5 the first time. It should be B.

 

However, #7 I disagree with your friend. Even though the test doesn't show a negative symbol, the delta of puts is always negative. When the underlying price goes down $1, delta (theoretically) decreases by the amount of gamma, so -0.50 minus 0.03 = -0.53. You can also think of it as the more the put is in the money (or in this case, less out of the money), the higher the delta will be; it just will be negative for a put and that's the part that is tricky about this question.

 

I agree with you on #11 and #13.

 

Edited September 25, 2022 by greenspan76

[vinky5 1]

18 hours ago, greenspan76 said:

Well, I'm not an expert by any means and there are way smarter people than me on this forum, so another opinion would be useful. I was agreeing with your answers and not your friend's, but I misread #5 the first time. It should be B.

 

However, #7 I disagree with your friend. Even though the test doesn't show a negative symbol, the delta of puts is always negative. When the underlying price goes down $1, delta (theoretically) decreases by the amount of gamma, so -0.50 minus 0.03 = -0.53. You can also think of it as the more the put is in the money (or in this case, less out of the money), the higher the delta will be; it just will be negative for a put and that's the part that is tricky about this question.

 

I agree with you on #11 and #13.

 

Thank you for your help, I'm submitting it now... fingers crossed!

[Optrader 128]

My answers are

5  B

price of call option increaes as underlying increases.

yes the tricky part is yes by being short , you are short delta and as underlying increases you are shorting more and more means you have to buy back at more and more expensive price of call and take more and more loss.

 

7 C

as underlying is falling , put delta increases by gamma so 0.53 is new delta of the put. Though it may seem confusing as it says the put delta was .50 for 320 strike which means underlying was at 320 ATM. But sometimes the delta is not exactly .50 so it can happen that stock was at 321 and delta of 320 put was .5 and stock moved down and delta now changed to .53

13 D 

as expiry comes closer , all in money deltas come closer to 100 while ou of money move closer to 0

13 D

 

selling call is basically shorting stock , so it is not offseting your short stock portfolio

 

I can understand your reason to move to portfolio margin , But it is more risky . It seems like you dont want to take loss on some trades ?

That is the hardest part to do as equity trader . Nobody wants to take a loss .

This is somewhat dangerous . Who said we have bottomed ?

Recession has not yet started . That is why fed wants to keep moving aggressively till it thinks it can.

If you have seen dot com or financial crisis recession , stocks had no bottom.

Anyway Good luck.

[vinky5 1]

2 hours ago, Optrader said:

My answers are

5  B

price of call option increaes as underlying increases.

yes the tricky part is yes by being short , you are short delta and as underlying increases you are shorting more and more means you have to buy back at more and more expensive price of call and take more and more loss.

 

7 C

as underlying is falling , put delta increases by gamma so 0.53 is new delta of the put. Though it may seem confusing as it says the put delta was .50 for 320 strike which means underlying was at 320 ATM. But sometimes the delta is not exactly .50 so it can happen that stock was at 321 and delta of 320 put was .5 and stock moved down and delta now changed to .53

13 D 

as expiry comes closer , all in money deltas come closer to 100 while ou of money move closer to 0

13 D

 

selling call is basically shorting stock , so it is not offseting your short stock portfolio

 

I can understand your reason to move to portfolio margin , But it is more risky . It seems like you dont want to take loss on some trades ?

That is the hardest part to do as equity trader . Nobody wants to take a loss .

This is somewhat dangerous . Who said we have bottomed ?

Recession has not yet started . That is why fed wants to keep moving aggressively till it thinks it can.

If you have seen dot com or financial crisis recession , stocks had no bottom.

Anyway Good luck.

Thank you so much!  I already submitted the test last night... but glad to know you agree with the answers I submitted.  Yeah, I am very anxious.  I messed up pretty bad with selling Puts in January not knowing that it was on margin money not the cash in my account so now I am in a horrible situation.  My plan for now is to hold as much as I can and sell covered calls with what I can to generate some income to offset the margin being paid and weather the storm.  I think I will be ok if it rebounds within 2-3 years, obviously the sooner the better.

 

You seem very knowledgeable and experienced.  Do you have a youtube channel or discord that I could check you out on?

[Optrader 128]

I dont have a youtube. May be I should, but that is a different kind of business.

What I have learnt is what steady options has taught me. So all the knowledge is here somewhere.

But just want to warn you that portfolio margin can be dangerous as it only looks at 15% moves. It cannot survive a covid or terrorist attack events or wars. One such event and it can blow up not only account but house too.

The only two reasons to use portfolio margin is for advanced option strategies like backspreads or reverse calendars.

 

[vinky5 1]

9 hours ago, Optrader said:

I dont have a youtube. May be I should, but that is a different kind of business.

What I have learnt is what steady options has taught me. So all the knowledge is here somewhere.

But just want to warn you that portfolio margin can be dangerous as it only looks at 15% moves. It cannot survive a covid or terrorist attack events or wars. One such event and it can blow up not only account but house too.

The only two reasons to use portfolio margin is for advanced option strategies like backspreads or reverse calendars.

 

Thanks man, yeah I don't know what to do in my situation.  I don't want to sell some of the solid companies I have like Sofi or NVDA that I know will rebound eventually for 60% losses.  But you are right, if there was another covid situation or nuclear war with russia, they would liquidate all of my assets at the bottom.  But I have little choice at this point, it's either sell for guaranteed 60-80% losses now or wait it out by selling occasional covered calls and collecting premiums from stock lending programs to try to negate the margin I would be losing.

[princessvioletta 1]

Thanks for explanations. That was very informative for me.