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Option Trading Margin: Regulation T vs. Portfolio Margin [Which Should YOU Use] - YouTube
Channel: BestStockStrategy
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Regulation t margin versus Portfolio margin聽
which one should you use in this video you're聽聽
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going to learn which type of margin is best when聽
trading options let's get started we get started聽聽
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please subscribe and click the notification聽
bell regulation t is available for accounts聽聽
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that have a minimum balance of around two聽
thousand dollars when you sell naked options聽聽
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using regulation t it's going to reduce your聽
buying power by anywhere from 12 to 20 percent聽聽
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as a result let's say you sell one contract with a聽
strike price of a hundred dollars that means that聽聽
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the notional value of that contract is going聽
to be ten thousand dollars because the hundred聽聽
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dollar strike price and one contract equals聽
100 shares and if you're trading regulation t聽聽
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then your buying power reduction is going to be聽
anywhere from 12 to twenty percent of ten thousand聽聽
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dollars which means it's going to be reduced by聽
twelve hundred dollars to two thousand dollars for聽聽
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every contract that you sell in contrast portfolio聽
margin which is usually available to accounts聽聽
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with an account balance or net liquidation value聽
of around 150 000 or more will usually reduce聽聽
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your available buying power by around four聽
percent to ten percent of the maximum loss聽聽
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so using the same example as we did previously聽
instead of reducing your available buying聽聽
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power by twelve hundred to two thousand聽
dollars for every contract that you sell聽聽
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by using portfolio margin it'll reduce聽
your available buying power by about聽聽
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four hundred dollars to around one thousand聽
dollars for every contract that you sell portfolio聽聽
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margin stress tests your entire portfolio in聽
aggregate as a result the further out of the money聽聽
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options that you sell the less your buying power聽
is going to be reduced so again pm or portfolio聽聽
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margin looks at the risk of your entire portfolio聽
in my opinion if you have an account balance of聽聽
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over a hundred and fifty thousand dollars and i聽
think that that number varies for each brokerage聽聽
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whether it be e-trade or schwab or interactive聽
brokers then i would definitely recommend always聽聽
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using portfolio margin portfolio margin is great聽
especially when you're disciplined because it聽聽
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enables you to sell further out of the money聽
options i remember when amazon fell below 3 200聽聽
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in late september and early august of 2021 and聽
during that time i was selling put options in聽聽
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amazon with a strike price of 2200 or 2300 and聽
my buying power was only being reduced by a few聽聽
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thousand dollars per contract despite collecting聽
around three to four hundred dollars for every聽聽
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contract that i was selling portfolio margin聽
allows you to make less risky trades and increase聽聽
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your win rate without significantly reducing聽
your available buying power you can literally聽聽
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sell further out of the money options and collect聽
premium on trades using portfolio margin that you聽聽
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would not make when using regulation t because the聽
amount of buying power that is going to be used up聽聽
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when trading with regulation t might encourage you聽
to be more aggressive with your strike selection聽聽
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so that you can collect more premium additionally聽
when you're trading using portfolio margin聽聽
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when volatility is low and when the vix is聽
trading below 15 you might be more likely聽聽
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when using portfolio margin to trade further聽
out of the money and trade naked options聽聽
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as opposed to using vertical credit spreads聽
one major drawback of using portfolio margin聽聽
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especially when trading naked options is that聽
during a large volatility expansion event your聽聽
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excess liquidity has a tendency to drastically聽
decrease as a result it's very important to聽聽
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always make sure that you don't trade too large聽
and that you always leave an ample safety net聽聽
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so that you do not get hit with a margin call if聽
the market pulls back by 15 or 20 percent because聽聽
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if the market does pull back by 15 or 20 percent聽
and the VIX increases from 15 to 40 then you don't聽聽
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want to run out of buying power and be forced to聽
close out positions at the most inopportune time聽聽
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David Jaffee with beststockstrategy.com please聽
subscribe and click the notification bell聽聽
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leave a comment below and let me know your聽
thoughts on whether you would prefer to trade聽聽
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using portfolio margin or whether you聽
would prefer to trade using regulation t
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