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Hi Narrative, I remember when I had that same fear. I was convinced that margin trading was too risky, because of exactly what you said--I didn't want to lose more money than I put in. Ultimately, I realized a couple things. First of all, I needed margin in order to trade most types of spreads. Since they involve buying one option and selling another, it doesn't matter that your risk is defined--your broker requires you to have margin just to execute the trade. It is up to you to know what your risk is. Some spreads--like most calendars--have risk limited to the debit you paid. Others, like SPY/TLT, have risk limited to the difference between the strikes of the spreads. Others, like VIX Calendars, have risk substantially beyond the margin requirement. It's what we call "tail risk"--very unlikely events. But those events do happen, and theoretically your losses are unlimited. (In practice, there is some limit to how high volatility can go, but that limit is not necessarily the margin required, like it is for other spreads). The second thing I realized was that by getting a margin account and trading spreads, I was actually reducing my risk. Although it's counter-intuitive, you stand to lose much much more if you are limited to buying calls and puts (so, directional positions & straddles with substantial time decay) than if you trade spreads, where you can take advantage of more nuanced market conditions and have multiple options hedging your bets. By taking advantage of the "difference" between two options, you're taking on less risk than if you were to buy or sell either option by itself. Of course, you can still take excessive risk through poor position sizing and management, but spreads themselves are not inherently riskier- I think they've got quite a bit less risk when done well. Finally, there's quite a bit of research which shows that implied volatility is, on average, higher than statistical volatility for indexes. This means that option selling strategies, like our Butterflies, Iron Condors, and SPX/RUT Calendars--have a statistical edge. No, they won't be profitable every month, but there is money to be made in the long run by selling options, and you can't do that without margin (except for a few covered calls). I don't intend to push you to open a margin account- I know it's a tough decision, and I wouldn't be writing this if you hadn't expressed that you're prepared to lose all of the cash you put into your trading account. Trading is risky, and it's surprisingly easy to get arrogant and make stupid decisions (I've got a large loss right now in VXX puts to prove it). I just wanted to share my experiences and what helped me make the decision. If you're still uncomfortable, you might talk to IB about coding your account to only trade defined risk spreads, to ensure you don't accidentally place a trade like a VIX calendar with more risk than you're comfortable with. It would essentially be like an IRA, which can trade options, but only so long as all positions have a defined risk and there is sufficient cash to cover that risk. I don't know if they do it, but I do know it's possible because they have to do it for IRAs: http://ibkb.interactivebrokers.com/node/188 Hope this helps, and best of luck to you in whatever form of trading you decide to do.

I think it depends on several factors, including what you mean by "hedge," or more specifically, how many deltas you want to reduce. If you want to truly hedge a long portfolio, subscribe to Anchor Trades and read up on Chris's methedology. It can be readily overlayed over any long stock portfolio, not just the ETF one that is the "official" portfolio. On the other end of the spectrum, I've had some good luck selling covered calls on individual stock (or ETF) positions. If the market goes up a little, sideways, or crashes, you keep a reasonable amount of premium which will take the edge off the crash. The only problem I have with Credit Spreads is that they can get pretty expensive if we have a recovery. The October 205/210 SPY Credit spread is about 1.50- in my opinion, that's not much protection relative to a cost of 3.50 if the markets recover in the next 6 weeks. The other big factor I see is whether you are trying to hedge against a "crash" or a "slow burn." If you're looking at a crash, OTM puts are probably your best way to go, but you could also consider a straight volatility play, since we can expect an IV spike if the markets drop another 5-10%. If you're looking at a "slow burn," you may want to consider something like the delta negative butterflies we currently have on. I actually loaded up on some extras of those (complete with the call hedge) specifically for the negative deltas. I figure if the market grinds down in the next several weeks, I will make a tidy profit (30-50% depending on how long it takes), which will take the edge off the drop. Just some food for thought. I'm looking forward to hearing from other's as well as there are always better ways to do it. I will have to check out the bear calendar spreads.