Margin and Complex Options

Most of the trades we do here are debit type of trades: we pay to enter and get get paid to exit (hopefully at a profit). However from time to time I post a credit type of trade, in those trades we get paid to enter and get paid to exit too (hopefully). The catch of the credit trades is that they require margin, however the margin required can be thought of as a collateral. You won't get margin calls, or margin interest charges on it. It is just the collateral in case the position moves to max loss. This is very different to the margin used for short trades, which changes all the time and also you get charged interest on it. Our trades are *all* defined risk and defined profit.

Along these lines I know that some of you have very big trading accounts and usually at those levels the brokerage houses tend to convince everyone to move towards Portfolio Margin (in general they try to move you when your account is higher than $200K for most of them). If you have a Portfolio Margin account or you are considering getting one be aware that the kind of trading we do in this room doesn't work well with them. In fact having a portfolio margin account and trading complex option spreads can be a disaster in case of market dislocation events. If option trading is your bread and butter, then I would strongly advice you to move back to a RegT account.

Leo Valencia hosts the Gamma Optimizer options service at ElliottWaveTrader.net.