Stock option margin formula?

[emilov]

Hi All,
I'm working on my own option trade calculator. Once completed I'll put it online for everybody to use. Part of that is to calculate margin on sold options (single or as part of spreads, synthetics, butterflies).

The ASX provides a Margin Estimator with an awful interface. It says there it uses TIMS to calculate the margins.

Does anyone know the formula this TIMS thingy uses to calculate option margins? Mind you, I found a page where one can download a file containing different margin parameters (such as margin interval) for each stock. So, once I have the formula I should be able get the same results as the ASX Margin Estimator.

Cheers,
Emil

 

[emilov]

In case anyone cares, I found it

There is a well hidden document on the ASX website that explains exactly how the margins are calculated (your mileage, um, broker may vary). You can download the document here. You can verify your calculation with the ASX Margin Estimator. I did a quick test with BHP sold 33$ May call and I could reproduce the results in there that I calculated manually.

The calculation requires a margin interval parameter (i.e. how much a stock is likely to move up or down in percent). That info you can get from here. It is adjusted once every week (or so it says in the document above), so you might wanna pull it then. In the file itself it says it's created after 6.45pm every day.

Interesting fact, if you look at the margin interval it reflects the very high scare factor of the current times. For example they quote BHP with 18% which means they "hedge" their risk with margins in case BHP went up/down to 37.84/27.17 (in a single day!). Now, that is a huge move even for ever-gapping BHP. That reflects the huge level of safety the ACH feels is necessary nowadays.

Another interesting fact: my bourse shows me the 20 day EMA ATR to be at around 1$. The ATR is a measurement for the above as well. So, 1$ as opposed to more than 5$ on the ACH margin interval!

 

[trader14]

That's great!.. I would be keen on seeing your margin calculator!

I have been using the ASX tool for "portfolio" margins and have found some problems -

- inconsistancy of results from the 2nd page and the portfolio sectiono write
- it dosent allow results to be saved
- if you do multiple option combination trades.. it doesn't allow you to access inputs other than the last "stock option" combination!

Discussed these with ASX and now understand the TIMs model & the interval margin updates...

I am intending to write one myself in excel.

Currently i am doing a combination of calendar ratio spreads both put & call on aus bank options. Many of the combinations can be positive credit, & minimal margin.
I profit from a share price move of > 5 ~ 10% in either direction within a 10 ~ 15 day window! - if it dosent happen (in theory).. i roll the position to the next month taking a minimal loss...

Practice has a few issues - main one being able to close the position at a share price trigger! (as i am not allways looking at the share price)!


So margin calculation is crucial for me!

Comments appreciated

 

[emilov]

Hey trader14,
Man, when I hear Excel I shudder every time. This monstrosity has been abused for so many things it wasn't designed for.

Yeah margin on a calendar spread is tricky, you gotta watch it if you don't have a big trading bank (in which case you wouldn't care so much so long as the stock price remains above/below your sold leg).

The development for our calculator is well under way. It's part of a trades management application where you will be able to manage all your trades, store them forever, see reports ("how did I do last moth"), see projections for future earnings/losses including margin. The projections will be available in real time e.g. you move a slider around with your mouse to reflect increases/decreases in stock price and time and it calculates on the fly. Very visual, very cool . We already have the binomial options formula incl. dividends nailed down. Margin implementation is next.

We are about 2-3 weeks away from a first demo of this calculator, I'll let you know once we release something. But don't expect it to bring real data (yet).

See, the data costs a pretty penny and we will only "turn it on" once we release the web application commercially (so we start making money to offset the wretched ASX fees). That is 3-4 months away, hopefully sooner.

Do send me an email so I can include you in the growing mailing list of interested traders

Cheers, Emil