Option charges

[osho67]

Dear RogerM

It is good you stimulated the debate. Financing charge by cfd companies are compounded. So I think simple interest calculation is not proper.

I might now complicate something more for Jonny. When I bought the msft shares, IB have only put aside margin for that and not charging me with the full amount. This leaves more money to invest as shown on my statement. I stand to be corrected on this.

 

[stevet]

osho67

hi

when u say "only charged margin for that and not the full amount" - what do u mean by the full amount?

 

[osho67]

Dear Stevet

I started IB a/c with 3000 GBP I bought 100 msft shares which should have roughly cost me 1880 GBP. So my available funds should be 1120 GBP, instead of that my available funds are 2140 GBP. Si I assume that they are only deducting initial and maintenance margin from my original depoit.

I am not very clear how everything has been worked out and I hope some experienced user of IB will explain.

 

[stevet]

osho67

if you are a day trader with 25K in your account, IB would charge you 25% of the share cost, otherwise with less than 25K, the charge is 50% - fairly standard for US retail brokers, and of course if you go long the stock with them and go short the call option on that undelying - you just get credited with the amount you write for

 

[RedE]

Covered Calls = RISK

I am sure all of you coverved call writers are aware of this, but just in case:

Covered Short Call = Synthetic Short Put

A covered call is NOT a risk free position.
It is not free money.

The risk graph for a covered call is identical to the risk graph of a short put. In fact, if you are looking for the arb opportunuties, you may consider doing short puts as opposed to covered call writes!

Writing a call gives you only limited protection on the underlying long stock position: if the stock falls, say, 40% you will be out of pocket 40% less your call premium.

 

[RogerM]

RedE - I agree 100%. We've been covering this in animated style on the "BUY or SEL Options - vote" thread.

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=8457