$10,000 Income Portfolio

[GOB]

After doing some research, I think I'm going to see how the open and the first couple of hours of trading play out before I write any covered call. A lot of smart people seem to think there's a good chance of opening in the high $670s and then gapping up $10-20 dollars in short order, even possibly hitting $700. $700 sometime this week is certainly plausible. I don't want to write a covered call too close to the money in case we have a banner week here. I may not write one at all, actually. I'll be playing it by ear.

[humble_pie]

they say a camel is a horse designed by a committee. Gob you are always gracious about it but sometimes it must drive you to distraction to have onlookers kibbitzing over your shoulder. It's hard enough juggling all the options in the air without having the back seat drivers chattering & nattering.

that being said, may i natter. Unlike lephturn, i never collar. Puts are hyper expensive to buy, especially in these times, especially when over an entire lifetime the general market trend is most likely to be up ... so why spend a ton of $$ hedgitting & fidjitting over something that's not going to happen ...

however. Given Lilliput's financial profile & margin exposure, i think i'd take up one of lepht's good suggestions. I'd be looking to buy a dirt cheap far-out-of-the-money protective put. A lifebuoy to use only in a black swan titanic sinking.

gob at what downside price point in aapl would margin be putting you at extreme risk ? 600 ? 580 ? worse ? what kind of otm puts can be found at these depths ? the good thing is that today they should be getting cheaper by the minute ...

your idea to cruise around today in option prices is perfect. I just hope you can spare the time from the day job. In your favour is that you're able to make first-rate decisions so rapidly.

[GOB]

It looks like my plan of waiting it out and assessing has backfired somewhat. Apple has flatlined and options premiums have gone down. I'm going to hold off for now and wait for a spike, possibly at tomorrow's open.

Humble, I'll address your questions tonight.

[GOB]

Full disclosure - I made a terrible mistake. Apparently, if you are holding stocks overnight, margin requirements double from 4:1 to 2:1. So while I had plenty of margin to sell puts and hold AAPL throughout the day once I got assigned, I did not have enough at the end of the day when margin requirements double. My $9500 deposit came through today so I thought I had tons of margin to spare - in fact, I have almost $60,000 of "buying power" remaining so I didn't have a worry in the world about a margin call. Quite confusing.

Anyway, long story short, I got margin called. It's not really a big deal because my positions were in profit anyway, but IB sold 10 of my AAPL shares. I think I need about an additional $1200 to satisfy my overnight margin requirement. I've made a transfer but it might take a couple of days. I now need to figure out what to do and perhaps you guys can offer some advice. Here are my options as I see them:

1) Buy back the 10 shares at market open (maybe even at a lower price than the sell!) and find a covered call to write that will give me a $1200+ premium. This will probably have to be a September option if I want the strike to be $680+ unless we get a large pop tomorrow.

2) Sell my remaining 90 shares (for about $500 profit at the current price) and go back to my put selling strategy. If I get assigned again my additional funds should have arrived and hopefully I will not have to deal with this issue again.

Would appreciate any advice. The ironic thing is that if I sold a covered call soon after the open when AAPL hit $680+ I may have had enough so that this would have never happened! But then again, I would have not known about it and it could very well have screwed me over down the road. It's well known that IB doesn't hold your hand and is quite a complex broker, and I knew that going in, so I have to take full responsibly for this mishap. Humble, your question about how much margin I could withstand was quite prescient...

Here are my transactions for today, a result of a mad confusing scramble to free up margin when IB gave me a 10-minute warning before market close - not the best way to trade...

Aug 27

Bought: 100 AAPL @ $670.00: -$67,000
Sold to Close: BuCS 1 AAPL 20OCT12 700/705: +$97.19 (Total profit $32.19)
Sold to Close: 100 KCG @ $2.7301: -$127.99 (Total profit -$7.99)
Sold to Close: BuPS 1 AAPL 19JUL13 490/495: -$54.26 (Total profit $44.39)
Sold to Close: 10 AAPL @ $675.73: +$6756.30 (Total profit $56.30)

Remaining open positions are as follows:

90 AAPL @ $670.00
BuCS 1 AAPL 19JAN14 625/630: -$176.53
BuCS 1 AAPL 19JAN14 670/675: -$151.50

Not quite what I had in mind, but I did say this would be an exciting week!

[humble_pie]

2gob i checked around a bit & i believe that you have been reading the margin regulations & requirements for US IB customers, not canadian IB customers.

daytime margin terms for canadian customers are a bit more harsh, being something like 3.3/1 instead of 4/1. It was suggested to me that, in order to comfortably support a small account holding 100 shares of aapl, you might need to have injected a total of something like 33,000 in cash. In addition, it's possible that selling a covered call against those shares might affect the margin. Plus i notice you have other positions in Lilliput.

won't you please give IB a call first thing tomorrow to learn more. Tel 1-877-745-4222. Because, you see, until margin is up to a comfortable level, you will be dealing with this same problem over & over again.

if i were in your place, i wouldn't make any decision about what option strategy to pursue until i had briefed myself thoroughly on the margin situation. Wishing you the very best.

EDIT: original version of this message referred to "overnight" margin in 2nd para. My bad, mea culpa. It should have said daytime.

all the more reason to go straight to the horse's mouth & contact IB directly.

[GOB]

I can confirm that my margin requirement for end of day is 2:1, so I would need $33,500 in equity to hold the $670 position. Adding the two spreads I have would bump it up to $34,500. Currently I have 33,298. I am leaning towards selling off and writing a put - it's safer.

[humble_pie]

but i'm still hoping you will call IB to iron out all the details because i also believe the 4/1 daytime margin rate is only for US clients & canadian daytime rate is less favourable.

also i believe true margin is *less* than what they call the buying power that's visible on an account. BMO is another broker that riffs about buying power. This may have something with an ADP mainframe system. It's quite misleading. TDW par contre means true margin as of close yesterday when it presents margin figures.

[GOB]

I did phone and also tried the chat. I know for fact initial intraday margin is 4:1 because my original $10,000 deposit gave me $40,000 buying power. Eventually I managed to get them to confirm overnight margin is 2:1 and that they are really being misleading by not displaying that margin in the Margin tab of their iPhone app. This is why it took me by surprise - I regularly look at my margin and they were all positive by a lot. Oh well, I should have known better.

Aug 28

Sold to Close: 90 AAPL @ $673.63: +$60,626.70 (Total profit $326.70)
Sold: 1 AAPL 31AUG12 $670.00 P: +$500

Back to the bread and butter. I feel a bit stupid for very thing that's happened but mistakes are the best way to learn . Glad I still ended up in the green...thanks Samsung!

Thanks humble as always for your help and concern.

[humble_pie]

hey you're still dancing you haven't missed a single step

[Lephturn]

I did phone and also tried the chat. I know for fact initial intraday margin is 4:1 because my original $10,000 deposit gave me $40,000 buying power. Eventually I managed to get them to confirm overnight margin is 2:1 and that they are really being misleading by not displaying that margin in the Margin tab of their iPhone app. This is why it took me by surprise - I regularly look at my margin and they were all positive by a lot. Oh well, I should have known better.

Aug 28

Sold to Close: 90 AAPL @ $673.63: +$60,626.70 (Total profit $326.70)
Sold: 1 AAPL 31AUG12 $670.00 P: +$500

Back to the bread and butter. I feel a bit stupid for very thing that's happened but mistakes are the best way to learn . Glad I still ended up in the green...thanks Samsung!

Thanks humble as always for your help and concern.

Yikes - well at least you were close on margin and they only sold off 10 shares! They way it worked out you would have been in great shape if they had blown out all of your AAPL at the open yesterday - but that's hindsight for you.

This is why I trade spreads - I don't want to be assigned. To me the ROI on 65k of cash and margin isn't worth it.