Stocks & Commodities V. 28:9 (55): Futures For You by Carley Garner

Stocks & Commodities V. 28:9 (55): Futures For You by Carley Garner
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Futures For You by Carley Garner


Last time, we discussed the mechanics of a margin call, about how they are triggered and how position delta can be used to manipulate margin. This time, weíll focus on the margin process and a hands-on example of making adjustments to margin and risk.

Margining short options: Before we can consider margin adjustment, we need to understand the basics of short option margining. What many people donít realize is selling an option immediately increases the cash in a trading account in the amount of premium collected minus transaction costs.

Although the short option itself is a liability, the cash collected enhances the equity that the margin is measured against. Accordingly, each dollar collected in premium increases the marginable funds. That said, option selling isnít a risk-free printing press for money; short option premium acts as a cushion toward losses at expiration but also leaves the trader open for theoretically unlimited risk of loss.

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