How does Margin Work with Options 💰 Should you Trade Options on Margin

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⏰Chapters ⏰
0:00 Intro
0:49 Margin usage poll results
1:47 What is margin?
2:16 How does margin work with options
5:09 Margin required for put option selling in TSLA
8:06 Margin requirement in TSLA if it dropped 30%
9:46 Why brokerages increase margin requirement in volatile markets
10:12 Difference in Reg-T and Portfolio margin
12:33 Estimated margin requirement of SPY (S&P 500) if it dropped 30%
15:16 Lessons I learned from trading options with margin

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In this video, I’m going to answer your questions about margin: How does it work? When to use it, when to avoid it, and what would happen in a 30% market crash if you were using margin? At the end of this video, I will also share with you some lessons I’ve learned by using margin over my years of option trading.

Margin is one of those things that can be difficult to understand. I’m speaking not only because of the comments you share with me, but also from my personal experience. Margin usage, how far to push it, whether you should use it at all and whether it’s good or bad, is a very common topic with option traders. Over the years I’ve been trading options, at times I have used margin in a big way. But now I either don’t use it at all, or if I do, it’s for a very small percentage of my account and for a very short period of time. I’m going to share with you what I know about margin to hopefully help you make better option trading decisions.

First and briefly, what is margin? There are really two types of margin. There’s margin in which you can use some of the brokers money, on loan to buy stocks. Then there’s the type of margin that I want to talk about in this video. That’s the margin requirement for us option traders when we sell options.

There are actually two types of margin for us option traders. There’s the type we have been looking at, regulation T margin and then there’s a type of margin called portfolio margin. Last time I checked, portfolio margin became available to a trader in Interactive Brokers once their account size reached $100,000. It then had to stay over that $100,000 in order for it to remain under portfolio margin. The difference is that instead of looking at each position’s margin requirement separately, portfolio margin looks at your overall portfolio. As a result, with portfolio margin you’re potentially able to trade with greater more leverage. Let me show you what I mean.

But what would happen to our margin requirement if the S&P 500 dropped 30%? Let’s talk through this scenario using TSLA and then the S&P 500.

There have only been a couple of times in my option trading career in which I hated what I was doing. Every single one of those times happened because I was using too much margin! As such, my advice to you would be to consider avoiding the use of margin. But if it's something you want to do, please make sure to use it very carefully.

Happy investing!
Randy Perez

#highnetworth #optionstrading #tradingoptions

Disclaimer: I am not a financial planner and am not offering investment advice. This is an opinion channel only and should not be taken as any form of financial advice. The ideas and strategies that I discuss should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional. There are financial risks involved in taking on any monetary transaction that I discuss in my videos. I may receive a small commission from the purchase of any item from using the links listed above.

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