Hi,
Consider the following scenario:
Current state::
cash 26649.22
buying_power 107420
initial_margin 0
last_maintenance_margin 1
maintenance_margin 0
non_marginable_buying_power 26649.22
options_buying_power 26649.22
portfolio_value 26650.22
Note that our portfolio only includes a 0.01 option and that explains the 1$ difference between portfolio value and cash.
Now, at this juncture, let us assume that we do the following trade:
Short call spread by going long NVDA250314C00113000 and short NVDA250314C00111000. Also assume that the execution of this trade results in a credit of $155. Since the net risk of this position is limited to $(113 - 111)*100 = $200, we expect a margin requirement of the same amount as well.
However after this trade, we have the following state:
cash 26804.13 ------ Increase of $155, which is expected.
buying_power 102959.76
initial_margin 200
last_maintenance_margin 1
maintenance_margin 200
non_marginable_buying_power 25664.67 – a decrease by $984.55,
options_buying_power 25664.67-- a decrease by $984.55,
portfolio_value 26635.13
Thus non margin buying power, as well as options_buying_power has decreased by unexplained huge amounts. I would have expected both of these to decrease by $200, since that the maximum risk associated with this portfolio. Can someone explain this non trivial decrease in the value of these metrics?
Thanks
I have confirmed that this issue happens even when we buy debit option spreads. Consider the following example:
Current state
<>
cash 26548.16
buying_power 107417.08
initial_margin 0
last_maintenance_margin 1
maintenance_margin 0
non_marginable_buying_power 26548.16
options_buying_power 26548.16
portfolio_value 26549.16
<>
Buy a debit option spread by going long NVDA250314C00111000 and short NVDA250314C00113000, incurring a net cost of $170. The resultant state is the following:
<>
cash 26378.06 ---- > decrease of $170, which is expected.
buying_power 103656.8
initial_margin 0
last_maintenance_margin 1
maintenance_margin 0
non_marginable_buying_power 25787.8 → decrease of $760.36, which is totally unexpected.
options_buying_power 25787.8
portfolio_value 26528.06
<>
Thus, the upshot of what we have seen is this: Even if our spread is a net debit one, if it involves a short option position, the non margin is decreasing by a very large amount. This behaviour looks erroneous and needs to be fixed. We do not see this behaviour when we go long a simple call/put.
Let me know if you need more clarifications.
Thanks
I am summarising all my issues/questions as a document here. Let me know if you need more information.
Does anyone have any thoughts on these? I would be delighted to provide any clarification whatsoever.
There is no straightforward answer to this. It all depends on how a broker calculates margin allocation and risk management. The reduction of non marginable buying power will always be more than your net risk. I tired the same setup on etrade and the reduction was more there, like $2000 vs $984 for Alpaca. As a rule of thumb, the reduction of buying power will be of the order of magnitude 4 to 5 times your net risk.
It all depends on the broker and the exact math is implementation dependent which a support personal may not know.
Thank you @ven7782 for checking this. However, the reply from Alpaca support to me on earlier query goes something like this:
=======
Yes, we support short call spreads. To initiate this strategy, you must maintain sufficient funds to meet the margin requirement, which is calculated as the difference between the strike prices × 100 × the number of contracts.
Also, if you were to check the margin requirements for IBKR(which is the other broker you use), it goes in line with the reply I obtained from Alpaca support.
So this needs to be fixed.
You already calculated that right? 2 * 100 * 1 = 200. The math doesn’t add up.
Yes and that is the issue. Alpaca is deducting a lot more than what they say.
