What's wrong with this margin calculation?
I'm calculating margin on put selling options using TDAmeritrade's formula. It can be found here on p.11: www.tdameritrade.com/retail-en_us/resources/pdf/AMTD086.pdf
Using the first example and putting it into a spreadsheet, I get the correct result of ,500:
Action: Sell six uncovered puts on PQR Corp.
Deliverable Per Contract: 100 Shares of PQR
Price of Security: .25
Market Strike Price:
Options Premium: .50
20% margin requirement calculation:
Percentage of Stock Value:
20% x [.25 x (6 x 100)] = 50
Out-of-the-Money Amount:
( – .25) x 600 = -0
Current Market Value of the Option:
.50 x 600 = 00
Total Requirement 500
But when I use the following numbers, the 2nd part is larger (26,400) than the 1st (22,680), which results in a negative margin. Ultimately, that results in a negative return, which really isn't the case.
Price of Security: 9
Market Strike Price: 5
Options Premium: .20
20% x [9 x (6 x 100)] = ,680
(5 – 9) x 600 = -,400
.20 x 600 = 0
Total Requirement (22680-26400+720) = -00
Anyone see what I'm doing wrong?
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As the referenced document says, there are 3 formulas, and you need to use the formula which results the greatest margin requirement. In your case, you need to use the 10% formula:
Percentage of Exercise Value:
10% x [5 x (6 x 100)] = 00
Current Market Value of the Option:
.20 x 600 = 0
--------------------------------------
Total Requirement 50
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