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This week's question:
DATE: March 15, 2010
QUESTION:
What is the margin requirement of shorting an iron condor? Are there guidelines from CBOE? Why do some firms require margin of 2x spreads while some only require 1x?
ANSWER:
The minimum requirement of full margin on the call credit spread and put credit spread was changed years ago. Some firms may charge the minimum requirement (assuming the spreads have the strike prices the same distance apart, the minimum margin would be the difference in the strikes less the total premium received. So e.g. with two 5-dollar credit spreads and you bringing in $2, the minimum margin would be $3). Why does the other firm require both margins? We don't know. Maybe they require that of all clients, maybe they want some of their clients to have more than the minimum for whatever reason (experience, size of account, etc. This is up to them). Maybe their back-office system can't handle it. I'd suggest asking the firm why they have this policy, and based on the answer make a decision as to what's best for you.
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