Comsuc is a comedian - Margin changes

[money tree]

"On 25 November 2005, the margin requirements for writing put options will be changing. From that date, the total margin required by CommSec for short put positions will be calculated using a minimum margin interval of 16.6%.
From 25 November 2005, there will also be a limit of 10 open unprotected short put positions per account."

 

[money tree]

Re: Comsuc is a comedian

from my course:

"INTERVAL FACTOR

When the ACH calculates margin, they use a formula that is largely based on the historical volatility of the stock. You will notice 2 different volatility variables when using the margin calc on the asx site:

Volatility: this is the average implied volatility from data collected from market makers. This variable is used to calculate fair price for options. It does not affect calculated margin.

Interval: this is how much the OCH expects the stock to move in its most volatile single day. Risk margin is calculated using this number as follows:

Eg NCP @ 1250
Option = 1300 call @ 20c
Interval @ 6%
Lower level = 1250 - 6% = 1175
Upper level = 1250 + 6% = 1325
Option value @ 1175 = 3c
Option value @ 1325 = 50c

Let’s say 20 contracts were written. Worst case, you need to have 20 x 50c = $10,000 additional funds available. That is, your RISK MARGIN is $10k on top of the $4k premium margin. Effectively, you need a $10k outlay to produce $4k income. Now if you think about that for a second, it’s lousy. Let’s do it again, with a stock having a much lower interval:

Eg XYZ @ 1250
Option = 1300 call @ 20c
Interval @ 3%
Lower level = 1250 - 3% = 1212
Upper level = 1250 + 3% = 1287
Option value @ 1212 = 10c
Option value @ 1287 = 30c

This time, worst case, you need to have 20 x 30c = $6,000 additional funds available. That is, your RISK MARGIN is $6k on top of the $4k premium margin. Effectively, you need a $6k outlay to produce $4k income. This is a 40% improvement in efficiency."

 

[money tree]

Re: Comsuc is a comedian

just for a laugh, lets do an example using 16.6%:

Eg XYZ @ 1250
Option = 1300 call @ 20c
Interval @ 16.6%
Lower level = 1250 - 16.6% = 1042
Upper level = 1250 + 16.6% = 1457
Option value @ 1042 = 0.1c
Option value @ 1457 = 160c

This time, worst case, you need to have 20 x 160c = $32,000 additional funds available. That is, your RISK MARGIN is $32k on top of the $4k premium margin. Effectively, you need a $32k outlay to produce $4k income. This is a 83% reduction in efficiency.

 

[dutchie]

Re: Comsuc is a comedian

Its called "covering your a#*e" !!

Agree that its a bit of a joke. Comsec will lose a lot of clients (unless the other brokers follow suit).

Comsec was already covered by a 1.5 times recommended margin - now its going for triple insurance.

 

[mit]

Re: Comsuc is a comedian

I have been reading the section on Margins in Commsec's PDF. It's all clear as mud to me at the moment. So for short puts you need cash, you can't use shares for the margin? Can you offset puts against calls or long puts?

MIT

 

[happytrader]

Re: Comsuc is a comedian

Its called "covering your a#*e" !!

Agree that its a bit of a joke. Comsec will lose a lot of clients (unless the other brokers follow suit).

Comsec was already covered by a 1.5 times recommended margin - now its going for triple insurance.

Just reading between the lines. It could be commsec are finding an increase in traders not being able to cover their margins or going bankrupt. There has been an enormous increase in the use of derivatives and with that comes inexperience and substantial loss. People lose their homes doing this stuff.

Cheers
Happytrader

 

[Synapse]

How important is a more flexible Broker?

Hi,

I wonder how many Option Traders out there have actually done the math to work out how much their Stockbroker might be costing them, due to restrictive Margin Requirements...

If you are required to put up more Margin than the ACH requires, then this will definitely affect your overall return. And I'm not talking about taking on bigger position sizes or more risk in any way - please allow me to explain:

Let's say that hypothetical company XYZ is currently trading at $20.00. You believe XYZ shares are going to remain fairly flat or rise just a little over the next month, so you are considering allocating $100,000 to purchase 5,000 x XYZ shares and then write some Covered Calls. But after checking the Premiums and brokerage costs involved, you realise that it will be more economical to instead just write 5 x XYZ $20.00 Put Options. You choose Options that will expire in exactly 1 month and receive 40c in Premium (a total of $2,000.00 across the 5 x Contracts).

Broker 1 wants 100% Cash Cover... Therefore you need to hand them $98,000 of your own capital, plus let them retain the $2,000 of premium received. This is then left with them for the month.

Broker 2 wants 50% Cash Cover... So you give them $48,000 of your funds for the month.

Broker 3 is happy with just the ACH's requirement... This means you only need to give them a total of about $5,000 for the month (subject to fluctuations as XYZ shares rise or fall in value). This is made of the $2,000 of Premium received plus $3,000 of your own capital.

If we assume that you have some form of property loan (whether a home loan, or an investment loan), you could be parking your unallocated cash either directly in the loan or in a 100% mortgage offset account until you need it (unless XYZ falls below $20.00, you can leave it there for the entire month). If the interest rate was 7%, here is the effect of this:

Broker 1 left you with $2,000 available. Over the course of 1 month, this would save you $11.67 in interest. If you hypothetically did this every month, then over a year this is a potential saving of $140.00.

Broker 2 left you with $52,000 available. Over the course of 1 month, this would save you $303.33 in interest. If you hypothetically did this every month, then over a year this is a potential saving of $3,640.00.

Broker 3 left you with $97,000 available. Over the course of 1 month, this would save you $565.83 in interest. If you hypothetically did this every month, then over a year this is a potential saving of $6,790.00.

So between Broker 1 and Broker 3, you could be better off by just over $550.00 per month risk-free! I'm not talking about taking on bigger position sizes, or investing the surplus cash in any way that increases your risk.

To really highlight the benefit of this, look at it this way: Your returns on your capital by using Broker 3 equate to a potential $6,650.00 improvement per annum for every $100,000 of capital used in this way. This is an enhancement of 6.65% per annum to your overall return, just by choosing a more flexible Stockbroker. Not bad, considering no more risk has been taken!

By the way, imagine using Broker 4 - they are like Broker 3, but will also pay you interest on the funds allocated to covering your Margin (my Broker pays interest at 5.15% per annum on whatever amount of capital is required to cover the Margin. As your capital increases, this makes a huge difference!).

In my opinion, trading successfully is all about gaining as much of an edge as you can... Why let your Stockbroker hold you back?


Jason.


P.S. You don't need a property loan to benefit by a Broker that requires less Margin cover. There are many savings accounts around which will pay interest rates of over 5%, so even this could mean you are about $100.00 per week better off for every $100,000 that you would have otherwise given to your Broker for their inflated Margin Requirement.

P.P.S. A flexible Stockbroker won't even care if you have "cash" available to cover your Margin, providing you have sufficient shares and/or bought Options to offset the ACH's Margin Requirement on your written positions.

Important: I am not a licenced investment advisor. This post is purely for entertainment purposes and should not be considered as any form of investment advice.

 

[Bingo]

Re: Comsuc is a comedian

You need to get a better broker. I have been selling put option contracts for many years (20). My broker takes script as cover and I have never had to put up any cash. At any one time my exposure (ie if all puts were exercised against me at the same time) is about $1m.

Not sure the advantages of comesc. My brokerage is 1% with a minimum of $50 on each option transaction with no on-line trading in options (shares only). Is comsec better on brokerage or does it have on-line trading in options. If not why are you trading with them?

 

[money tree]

Re: Comsuc is a comedian

"You need to get a better broker.......If not why are you trading with them?"

Who is "you" ?

Be careful with assumptions.....they lead to assuming

I dont use Comsec and never said I did. Nobody else did either.

 

[Bingo]

Re: Comsuc is a comedian

We are a touchy little boy or girl or whatever (no assumptions).

 

[tech/a]

Re: Comsuc is a comedian

Com'on Tree we (Those here in a general context) know you're "The" gun options trader---educator--licenced advisor.

"You" to me and everyone but--you-- it seems is generic.

 

[money tree]

Re: Comsuc is a comedian

its a wonder comsec has any clients eh Jason

In my course I discussed brokers margin requirements:

"I have changed brokers to Rivkin’s, who charge only 0.09% ($102.86 in this case, a saving of $287). Rivkin’s also specify OCH +0% margin, compared to Comsec who demand OCH +50%. When your margin blows out by $30,000 overnight, that extra 50% means you must provide an extra $15,000. You should be very careful when selecting a broker. Sanford for example wants 50% of the entire optioned position. This means if you write 20 TLS put options, they will demand a margin of $50,000. Compare this to Rivkin’s who would use the OCH margin of around $5,000, a massive difference."

so where are all these Comsec clients, and why dont they get a clue? While we are at it, those Sanford option writers are even more insane!

 

[happytrader]

Re: Comsuc is a comedian

Talking about comedians, Westpac must be right up there with the best of them with the 'leak' of their profit report yesterday. Reporting day was supposed to be today.

Cheers
Happytrader

 

[RichKid]

Re: Comsuc is a comedian

Just a quick word to the regulars and others here on ASF- please keep it strictly on topic. Otherwise this could get too heated, as in some other threads, and frankly that's unecessary. No need for personality descriptions please. There is no need to reply to this post either imo as that'll take it off topic, you can pm me if required.

 

[RichKid]

Re: Comsuc is a comedian- Margin changes

Just read this, a bit old but if it's true may explain the risk tightening. I have to say I'm nervous to hear EDS has anything to do with comsec. You just have to love that last line, this guy is not alone in being stuffed around!

CommSec Under Scathing Attack
November 08 2005 - Australasian Investment Review – (AIR)

Philip of Turramurra is a very unhappy camper. So incensed was he with his recent treatment by CommSec that he felt obliged to fire off a letter of complaint to Commonwealth Bank (CBA) client relations, and CC it to various media establishments including the Sydney Morning Herald, Radio 2GB and AIR.

"I write to advise you that my muted, but continual complaints to Comsec [sic] since the October long weekend when they introduced a new computer system have been dealt with in a lackadaisical and haphazard fashion, to such an extent that while I currently hold shares in ANZ, WBC and Macquarie, I wouldn’t dream of buying shares in CBA unless they fall 10%."

The upshot is that since CommSec introduced the new computer system, Philip’s balance has been bouncing around of its own accord – in either debit or credit – without him doing anything.


This could be written off as a sad joke, but on one occasion Philip was mysteriously credited with $300 in his options account and then asked for a margin call of $20,000, despite prices being unmoved.

CommSec’s response was for the back office to simply blame the front office. A direct complaint was met with a phone call that Philip describes as "patronizing and ingratiating and failed to respond to any of my issues".

A promised follow-up phone call, set down specifically to between 9-10am on Friday 28th, never came. The irony here is that the computer system in question was installed by the same IT outsourcing company (EDS Australia) which serviced the customs authority recently, only to bring the country to a stevedoring standstill and threaten bankruptcy for many a small importer. Even more ironically, Philip used to work for EDS. "I wouldn’t allow them near my children’s preschool computer system", says Philip.

Philip, clearly a frequenter of stock trader’s chatrooms, alleges the scuttlebutt over the net is that CommSec have suffered a major option position blow-out in the recent market correction which could rival that of NAB’s forex debacle and cost CBA 3.2% in earnings. (AIR is unaware of such a position). This doesn’t, of course, explain why the computer doesn’t work, but it’s a good way to vent one’s spleen.

Nevertheless, Philip has written his letter as "I am aware that I have a civic responsibility to ensure that when a major bank introduces software that confuses a credit with a debit to warn the widest possible audience of the problem."

 

[ocd]

Re: Comsuc is a comedian- Margin changes

Anything to do with Comm bank is crap (except for the stock). Try Optionexpress instead.

 

[Smurf1976]

Re: Comsuc is a comedian- Margin changes

There is a simple explanation for all of this and it's right there in one word. "Outsourced". A common cause of under performance where technical things are concerned.

 

[Fab]

Re: Comsuc is a comedian- Margin changes

I have looking for a good margin loan vendor . My thought is borough $50K and invest them on ZFX before the dividend payment on the 16/10 ( 70 cents) .
I am new to margin loan and would appreciate any advise or feedback on it.

Cheers

 

[Fugazi]

Re: Comsuc is a comedian- Margin changes

There is a simple explanation for all of this and it's right there in one word. "Outsourced". A common cause of under performance where technical things are concerned.

I don't know about here in Aus, but in the London IT community, EDS are certainly the subject of extensive ridicule, especially in the financial sector, closely followed by a mob called Computacenter who do basically the same thing. The general opinion is that they pay the salesmen the big bucks, and us techies get peanuts. Basically you go and work for one of these outsource companies while you learn what you're doing, and as soon as you are any good you go and get a real job.

I think the reality is more that they have a very small number of very good techies who are brought in to get a team up and running, but as soon as something looks like it is even remotely working, the good guys are bundled off to the next job, usually far too soon, and it all falls apart.