# Credit spreads with Commsec



## builder2818 (13 April 2009)

Is anyone here trading credit spreads with comsec and how have you found them?


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## jackson8 (13 April 2009)

builder2818 said:


> Is anyone here trading credit spreads with comsec and how have you found them?




hi
have been trading with commsec with spreads 
need to enter each leg individually and some say that other brokers have cheaper fees ex.IB and better platforms
probably depends on what level of trader you are as to whats better

for me comsecc ok as its a good learning experience to have to trade seperate legs helps to understand how it all works. but of course paying two lots of commission is bit of a killer.

trade desk can take a while to get through to at times if you need to contact them. so never rely on them for placeing trades i only always do online.

you need to be aware of the margin requirements
double what the asx margin calculator comes up with


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## builder2818 (13 April 2009)

If i'm doing a bull put spread, is my only margin the difference between the strike prices that I sold and bought the PUT for? Does comsec still require double this or because I have to do each leg separately do they still debit and credit your account daily with the margins?


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## jackson8 (13 April 2009)

builder2818 said:


> If i'm doing a bull put spread, is my only margin the difference between the strike prices that I sold and bought the PUT for? Does comsec still require double this or because I have to do each leg separately do they still debit and credit your account daily with the margins?




hi you will find it is more that the difference between strike prices as asx adds in additional risk margin then comsecc doubles the figure 
so aprox. a $1 stike difference will require comsecc margin of aprox and i do say aprox!   $1500.

margins are calculated and debited or credited daily to your cca account

here is link to asx margin calc.


http://www.asx.com.au/opc/OpcLead?issSB=266

if you need help with it just ask


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## builder2818 (13 April 2009)

SO, essentially your bought PUT doesn't account for anything when determining the amount of margin you have to pay? Do they just calculate what the margin is for the sold PUT side of the leg? 

I have written PUTs with them before but thought I could reduce my margin requirements by buying a PUT for protection.


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## jackson8 (13 April 2009)

builder2818 said:


> SO, essentially your bought PUT doesn't account for anything when determining the amount of margin you have to pay? Do they just calculate what the margin is for the sold PUT side of the leg?
> 
> I have written PUTs with them before but thought I could reduce my margin requirements by buying a PUT for protection.




the bought put reduces the margin required as it acts as an insurance policy

if you sold a naked put your margin requirements could be up around the $3700 for a $14.00 sold strike and as the sp drops that figure will grow

the bought  put contains the damadge and reduces your overall margin requirement


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## jackson8 (13 April 2009)

builder2818 said:


> SO, essentially your bought PUT doesn't account for anything when determining the amount of margin you have to pay? Do they just calculate what the margin is for the sold PUT side of the leg?
> 
> I have written PUTs with them before but thought I could reduce my margin requirements by buying a PUT for protection.




as an example
a  may naked put on sto strike $15. req. aprox margin $2938 by comsec for 1 contract

a spread of $15 sold and $14 bought reduces that margin to $1200

further to that if the sp falls to $15 margin on naked $3700 whereas spread margin will remain fairly constant at $1100-1200


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## builder2818 (13 April 2009)

Thanks for the help Jackson, I sort of understand the options calculator but not for doing spreads.

Say for example I want to:
sell 40 XYZ May PUT $20.00 @ $1.695
buy 40 XYZ May PUT $19.50 @ $1.320

I was assuming my total margin would be:
20-19.50 = 0.5 - ($1.695 - $1.320) = 0.125
0.125 x 40000 = $5000

Would comsec add to this?


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## jackson8 (13 April 2009)

builder2818 said:


> Thanks for the help Jackson, I sort of understand the options calculator but not for doing spreads.
> 
> Say for example I want to:
> sell 40 XYZ May PUT $20.00 @ $1.695
> ...




the asx margin calc is quite complicated computation
but according to the calculator on asx your margin req by comsec would be aprox $42000 or $1050 per contract having used anz as an example

reflects what i said earlier about risk margin being added in by both asx and commsec
to add your method of working out the margin is incorrect


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## builder2818 (13 April 2009)

I can't see why you would need to come up with such a high margin when your bought PUT covers most of the margin.


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## jackson8 (13 April 2009)

i dont think that there is an off the top of the head method of working out the margins as month of exp and position of spread to price of the underlying are all going to play a part in the process as well as diff between strikes.

thats why i always use asx calc. and even then i find some variances from day to day between  them and commsec


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## cutz (13 April 2009)

G'Day Builder,

This document explains how margins are worked out http://www.asx.com.au/markets/pdf/UnderstandingMargins.pdf , the calculator site jackson8 listed actually can demonstrate the reducing margin requirements as you add long positions, ie start with a short position (minus symbol in front of no. of contracts) calculate margin then add a long position and you will find margin requirements will reduce, double the figure and this is what commsec uses.


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## builder2818 (13 April 2009)

Thanks Cutz. Do I need to look at the first table under the options details (Margin Table) or the one under that (Theoretical Total Value of the number of option contracts) to get the margin price?


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## jackson8 (13 April 2009)

hi builder

i hope you dont mind but have borrowed this from other thread where you voiced some concerns over margin

quote
Also, do most brokers require you to come up with collateral to meet your margin requirements? I am with commsec and they double what ever the ACH calculates as a margin for your option. I don't like this - I have the money to purchase the stock if I was exercised but 2/3rds of it is in the form of a margin loan and I cannot draw down on this if my cash component isn't enough. Are there brokers out there that are happy enough for you to just meet your ACH margins knowing you can purchase the shares if you're exercised?   quote

i have not dealt with other brokers but from my understanding they all rely on the asx for initial margin calculations 
what they choose to do after that within their own policies may differ from broker to broker.
the requirements may seem a little harsh but the asx have specific regulations in place to assure the integrity of the options market and the high financial risks associated with trading it.

margin requirements can be a stumbling block to placing larger trades but at the same time act as a failsafe to some degree


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## jackson8 (13 April 2009)

builder2818 said:


> Thanks Cutz. Do I need to look at the first table under the options details (Margin Table) or the one under that (Theoretical Total Value of the number of option contracts) to get the margin price?




after you have entered all positions click on portfolio tab and that will bring up margin under
as an ex.

Margins payable on all positions:

ASX Code Underlying Abbrev Name Premium Margin Risk Down Margin Risk Up Margin Chosen Risk Margin Total Margin     
ANZ ANZ BANKING GRP LTD  -17200 -24736 15310 -24736 -41936     
  Total cash margin -17200     -24736 -41936  






you can then add in colatoral but remember to either enter in the double no. of contracts for both legs to get comsec margin or just double the end result . both will acheive the same


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## cutz (13 April 2009)

builder2818 said:


> Thanks Cutz. Do I need to look at the first table under the options details (Margin Table) or the one under that (Theoretical Total Value of the number of option contracts) to get the margin price?




Hi Builder,

You need to look at the margin table, the first block show total margin payable (premium + risk), the blocks below show how the margin requirements change as the underlying changes in price ( assuming all other inputs remain the same).

For further info refer to the explanations at the bottom of the ASX margin page.


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## builder2818 (13 April 2009)

I posted that a few weeks ago because I wanted to know about selling naked PUTs. I don't want to do this anymore and more interested in spreads. I thought that I could gain a bigger exposure to a stock while realising my maximum profit and risk. 

If margin requirements differ greatly from what I calculated them to be, spreads might not be suited to me. I know there are brokers out there who can lend you 100% of the cost to purchase shares to write covered calls on as long as you have the bought PUT in place for protection. I know the margin requirements I calculated for spreads may be available but comsec brokerage rates obviously would favour me in the event I got exercised. I guess you get what you pay for huh?


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## builder2818 (13 April 2009)

cutz said:


> You need to look at the margin table, the first block show total margin payable (premium + risk), the blocks below show how the margin requirements change as the underlying changes in price ( assuming all other inputs remain the same).
> 
> For further info refer to the explanations at the bottom of the ASX margin page.




So should I assume the total margin payable is what comsec will double to take off me for placing the trade. Do I then subtract the premium received to get the actual amount?


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## jackson8 (13 April 2009)

builder2818 said:


> So should I assume the total margin payable is what comsec will double to take off me for placing the trade. Do I then subtract the premium received to get the actual amount?




yes to my understanding that is correct
just keep in mind that as the underlying flutuates from day to day the margin req wil be adjusted to debit more or credit depending which way the sp moves


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## cutz (13 April 2009)

builder2818 said:


> So should I assume the total margin payable is what comsec will double to take off me for placing the trade. Do I then subtract the premium received to get the actual amount?




Correct, if you're using cash only as margin, so in effect commsec keeps the net premium then deducts the outstanding amount from your bank account (to submit to the OCH).


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## jackson8 (13 April 2009)

there are probably a few basic principles involved 

the closer the spread to the sp the higher the margin req

the further distance between strikes the same

and also the further out in time the series  the same 

volatility of the underlying will also affect the requirements


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## builder2818 (13 April 2009)

cutz said:


> Correct, if you're using cash only as margin, so in effect commsec keeps the net premium then deducts the outstanding amount from your bank account (to submit to the OCH).




Is there a maximum amount of margin that can be taken before you can be exercised. The ASX calculator only shows a stock prices below the sold option price.


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## sails (13 April 2009)

Haven't read through the last posts in detail, so apologies if I'm off the mark here.  I always thought the margin for credit spreads is the difference between the two strikes less any credit received?  Or does Commsec have a different policy?

That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing).  Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).

I was taught the debit in a debit spread is the same as margin in a credit spread.


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## cutz (13 April 2009)

Yeah Sails,

Commsec have a different policy, they use double the figure that's required by the OCH as calculated on the asx website. So using todays figures a May expiry 1 contract BHP 30/28 put credit vertical requires $1348 in margin, commsec will use a figure of $2696.


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## cutz (13 April 2009)

On a side note Sails confirming what you have already stated, when i placed my first trade with IB i set up a 2 contract bank put credit vertical to test the waters and see how they calculate margins and the required amount was exactly the difference between strikes by no of contracts, i was pleasantly surprised as its the way it should be.


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## jackson8 (13 April 2009)

sails said:


> Haven't read through the last posts in detail, so apologies if I'm off the mark here.  I always thought the margin for credit spreads is the difference between the two strikes less any credit received?  Or does Commsec have a different policy?
> 
> That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing).  Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).
> 
> I was taught the debit in a debit spread is the same as margin in a credit spread.




hi sails 
using the asx calc.
a credit spread always brings up a margin payable while a debit spread requires no margin and the margin payable does not equate to the same position as a debit spread

a question something that relates to my earlier post

are all brokers required to utilise the asx margin requirements or can they implement their own policies ?


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## builder2818 (13 April 2009)

sails said:


> Haven't read through the last posts in detail, so apologies if I'm off the mark here.  I always thought the margin for credit spreads is the difference between the two strikes less any credit received?  Or does Commsec have a different policy?
> 
> That's why there is no real difference in using a debit spread vs. a credit spread (unless dividends, etc are factored into the option pricing).  Eg. it would make more sense to put on an out of the money call debit spread than an in the money put credit spread (assuming same strikes/months, etc).
> 
> I was taught the debit in a debit spread is the same as margin in a credit spread.




This is what I always thought. I just wanted clarification. Online broking would be more favourable in the case of the cost of being exercised. I can't see why comsec need to double the margin on spreads, then have to give it back to you regardless if the option expired worthless or not.


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## sails (13 April 2009)

jackson8 said:


> hi sails
> using the asx calc.
> a credit spread always brings up a margin payable while a debit spread requires no margin and the margin payable does not equate to the same position as a debit spread




That's correct - debit spreads require no margin.  They are fully paid for up front. 
(_NB:  ITM Call debit spreads can go wrong on the day before xdividend if the short call is assigned leaving one short the stock on xdiv day and being liable for the dividend_.)



> a question something that relates to my earlier post
> 
> are all brokers required to utilise the asx margin requirements or can they implement their own policies ?




I'm not sure, but I think the ASX margins are the minimum and I also think brokers are allowed to take more in margins if they want.  The credit spreads I have traded have always been the difference between the strikes less credit received.

If the ASX margins are less than that - perhaps some brokers are OK to take the lesser margin, but it would be prudent to ensure you have any remaining amount on hand should it be required.  I'll have a look in IB sometime when the market is trading and see what they take in margins for credit spreads.


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## sails (13 April 2009)

builder2818 said:


> This is what I always thought. I just wanted clarification. Online broking would be more favourable in the case of the cost of being exercised. I can't see why comsec need to double the margin on spreads, then have to give it back to you regardless if the option expired worthless or not.




Yes, not sure why Commsec would double the spread margins.  Maybe so they have extra money to cover their horrendous stock fees if you get assigned? Or am I being facetious?


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## jackson8 (13 April 2009)

sails said:


> Yes, not sure why Commsec would double the spread margins.  Maybe so they have extra money to cover their horrendous stock fees if you get assigned? Or am I being facetious?




they are probably counting on us making bad or misguided trades especially seeing as their site is more suited for the inexperienced or learners and want to make sure they get their money back.


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## builder2818 (13 April 2009)

I don't know if I am reading the ASX margin calculator right or not......Under the margin table it has the premium margin: $x, risk margin: $x and total margin: $x. I understand this but is that the total margin from the day the spread was placed or is it the most you would have to pay in margins for the whole month?

The understanding margins booklet explains that the margins are calculated daily based on the options price. If you have sold a PUT and bought a PUT, if the stock continues to fall against you does the bought PUT make up for any of the margins that are recalculated to be debited from you?

I ask this because I have written naked puts before and comsec take an initial margin off you which is 2x the ACH margin and the stock has fallen over a few days and they continue to take more money. If I had bought a PUT would I have received a credit which would effectively cancel any further margins?


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## jackson8 (13 April 2009)

builder2818 said:


> I don't know if I am reading the ASX margin calculator right or not......Under the margin table it has the premium margin: $x, risk margin: $x and total margin: $x. I understand this but is that the total margin from the day the spread was placed or is it the most you would have to pay in margins for the whole month?
> 
> The understanding margins booklet explains that the margins are calculated daily based on the options price. If you have sold a PUT and bought a PUT, if the stock continues to fall against you does the bought PUT make up for any of the margins that are recalculated to be debited from you?
> 
> I ask this because I have written naked puts before and comsec take an initial margin off you which is 2x the ACH margin and the stock has fallen over a few days and they continue to take more money. If I had bought a PUT would I have received a credit which would effectively cancel any further margins?





hi 
sounds like you are reading correctly
they are recalculated on a daily basis and your account with commsec will be credited or debited each day
because it is a spread you are correct in that the bought put produces some credit against the solds debit so their may be some variation from a day to day basis but it should not represent too much
to get an idea of how it changes go back to the page on the asx where it shows the positions and adjust the price in the sp value box either up or down then press recalculate and this may give you an idea of the change


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## jackson8 (13 April 2009)

builder

make sure that after you have entered added your positions to the main page that you click on the portfolio button this will bring up a page which allows you to see your overall margin position and also allows you to add things like shares you may have as collatoral into the equation


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